We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Primerica, Inc. (NYSE:PRI).
Is Primerica, Inc. (NYSE:PRI) a buy, sell, or hold? Prominent investors are becoming more confident. The number of long hedge fund bets went up by 2 in recent months. Our calculations also showed that PRI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). PRI was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with PRI holdings at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the recent hedge fund action regarding Primerica, Inc. (NYSE:PRI).
What have hedge funds been doing with Primerica, Inc. (NYSE:PRI)?
At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in PRI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cantillon Capital Management held the most valuable stake in Primerica, Inc. (NYSE:PRI), which was worth $117.1 million at the end of the third quarter. On the second spot was Brave Warrior Capital which amassed $93.2 million worth of shares. GLG Partners, Millennium Management, and Prospector Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Brave Warrior Capital allocated the biggest weight to Primerica, Inc. (NYSE:PRI), around 4.93% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 1.58 percent of its 13F equity portfolio to PRI.
Consequently, some big names have jumped into Primerica, Inc. (NYSE:PRI) headfirst. Winton Capital Management, managed by David Harding, initiated the most valuable position in Primerica, Inc. (NYSE:PRI). Winton Capital Management had $6.6 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $1.2 million position during the quarter. The following funds were also among the new PRI investors: Qing Li’s Sciencast Management, Richard Driehaus’s Driehaus Capital, and Jinghua Yan’s TwinBeech Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Primerica, Inc. (NYSE:PRI) but similarly valued. These stocks are The Hanover Insurance Group, Inc. (NYSE:THG), IDACORP Inc (NYSE:IDA), Amedisys Inc (NASDAQ:AMED), and Hanesbrands Inc. (NYSE:HBI). All of these stocks’ market caps match PRI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $324 million in PRI’s case. Hanesbrands Inc. (NYSE:HBI) is the most popular stock in this table. On the other hand The Hanover Insurance Group, Inc. (NYSE:THG) is the least popular one with only 21 bullish hedge fund positions. Primerica, Inc. (NYSE:PRI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PRI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRI were disappointed as the stock returned -37.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.