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Hedge Funds Have Never Been This Bullish On AFLAC Incorporated (AFL)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards AFLAC Incorporated (NYSE:AFL) and determine whether hedge funds skillfully traded this stock.

AFLAC Incorporated (NYSE:AFL) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AFL investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 32 hedge funds in our database with AFL holdings at the end of March. Our calculations also showed that AFL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to view the recent hedge fund action regarding AFLAC Incorporated (NYSE:AFL).

What have hedge funds been doing with AFLAC Incorporated (NYSE:AFL)?

Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AFL over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in AFLAC Incorporated (NYSE:AFL). Citadel Investment Group has a $217.8 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $71.9 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish encompass D. E. Shaw’s D E Shaw, John W. Rogers’s Ariel Investments and Peter Seuss’s Prana Capital Management. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 6.59% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 2.24 percent of its 13F equity portfolio to AFL.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Prana Capital Management, managed by Peter Seuss, established the biggest position in AFLAC Incorporated (NYSE:AFL). Prana Capital Management had $48.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $26.2 million investment in the stock during the quarter. The other funds with brand new AFL positions are Daniel Johnson’s Gillson Capital, Greg Poole’s Echo Street Capital Management, and Thomas Bailard’s Bailard Inc.

Let’s check out hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). These stocks are Suncor Energy Inc. (NYSE:SU), Sirius XM Holdings Inc (NASDAQ:SIRI), Cummins Inc. (NYSE:CMI), Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). All of these stocks’ market caps are closest to AFL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SU 29 845050 -1
SIRI 42 1136784 6
CMI 38 358670 4
SLB 53 932470 4
JCI 28 1099174 -9
FMS 6 11727 -4
WLTW 49 2288145 6
Average 35 953146 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $953 million. That figure was $588 million in AFL’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. AFLAC Incorporated (NYSE:AFL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AFL is 66.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately AFL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AFL investors were disappointed as the stock returned 1.6% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.