Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Ubiquiti Inc. (NYSE:UI) makes for a good investment right now.
Ubiquiti Inc. (NYSE:UI) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that UI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
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. Now let’s analyze the new hedge fund action regarding Ubiquiti Inc. (NYSE:UI).
Hedge fund activity in Ubiquiti Inc. (NYSE:UI)
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the third quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in UI 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.
The largest stake in Ubiquiti Inc. (NYSE:UI) was held by Renaissance Technologies, which reported holding $117.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $43.4 million position. Other investors bullish on the company included D E Shaw, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Bandera Partners allocated the biggest weight to Ubiquiti Inc. (NYSE:UI), around 11.65% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, earmarking 2.34 percent of its 13F equity portfolio to UI.
Now, key hedge funds have jumped into Ubiquiti Inc. (NYSE:UI) headfirst. Citadel Investment Group, managed by Ken Griffin, established the biggest position in Ubiquiti Inc. (NYSE:UI). Citadel Investment Group had $7.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $3.5 million position during the quarter. The following funds were also among the new UI investors: Nathan Przybylo’s L2 Asset Management, Michael Gelband’s ExodusPoint Capital, and Campbell Wilson’s Old Well Partners.
Let’s check out hedge fund activity in other stocks similar to Ubiquiti Inc. (NYSE:UI). We will take a look at China Eastern Airlines Corp. Ltd. (NYSE:CEA), Cna Financial Corporation (NYSE:CNA), AXA Equitable Holdings, Inc. (NYSE:EQH), and Domino’s Pizza, Inc. (NYSE:DPZ). All of these stocks’ market caps are similar to UI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEA | 1 | 578 | 0 |
| CNA | 15 | 82549 | -1 |
| EQH | 33 | 1557170 | 10 |
| DPZ | 31 | 1995378 | -8 |
| Average | 20 | 908919 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $909 million. That figure was $301 million in UI’s case. AXA Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand China Eastern Airlines Corp. Ltd. (NYSE:CEA) is the least popular one with only 1 bullish hedge fund positions. Ubiquiti Inc. (NYSE:UI) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately UI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UI were disappointed as the stock returned -37.3% 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.
Disclosure: None. This article was originally published at Insider Monkey.
