Hedge Funds Never Been This Bullish On Genworth Financial Inc (GNW)

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 Genworth Financial Inc (NYSE:GNW) and determine whether hedge funds skillfully traded this stock.

Is Genworth Financial Inc (NYSE:GNW) undervalued? Prominent investors were betting on the stock. The number of long hedge fund positions moved up by 4 lately. Genworth Financial Inc (NYSE:GNW) was in 36 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. Our calculations also showed that GNW 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.

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 56 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.

Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 go over the key hedge fund action encompassing Genworth Financial Inc (NYSE:GNW).

What have hedge funds been doing with Genworth Financial Inc (NYSE:GNW)?

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in GNW a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Miller Value Partners held the most valuable stake in Genworth Financial Inc (NYSE:GNW), which was worth $30.6 million at the end of the third quarter. On the second spot was Shah Capital Management which amassed $19.6 million worth of shares. Sonic Capital, Pentwater Capital Management, and Maso Capital 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 Litespeed Management allocated the biggest weight to Genworth Financial Inc (NYSE:GNW), around 14.14% of its 13F portfolio. Shah Capital Management is also relatively very bullish on the stock, dishing out 11.78 percent of its 13F equity portfolio to GNW.

As aggregate interest increased, key hedge funds have jumped into Genworth Financial Inc (NYSE:GNW) headfirst. Beryl Capital Management, managed by David Alexander Witkin, established the biggest position in Genworth Financial Inc (NYSE:GNW). Beryl Capital Management had $2.9 million invested in the company at the end of the quarter. Matthew Moskey and Friedrich Schulte-Hillen’s Athos Capital also made a $0.7 million investment in the stock during the quarter. The other funds with brand new GNW positions are Dmitry Balyasny’s Balyasny Asset Management, Michael Gelband’s ExodusPoint Capital, and Michael Hintze’s CQS Cayman LP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Genworth Financial Inc (NYSE:GNW) but similarly valued. We will take a look at Safety Insurance Group, Inc. (NASDAQ:SAFT), Victory Capital Holdings, Inc. (NASDAQ:VCTR), Service Properties Trust (NASDAQ:SVC), Domtar Corporation (NYSE:UFS), Kaiser Aluminum Corp. (NASDAQ:KALU), Carpenter Technology Corporation (NYSE:CRS), and Sandy Spring Bancorp Inc. (NASDAQ:SASR). This group of stocks’ market caps are similar to GNW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAFT 13 41971 1
VCTR 9 74304 1
SVC 21 54322 -2
UFS 27 136892 9
KALU 16 62214 0
CRS 16 59693 0
SASR 10 32787 -2
Average 16 66026 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $164 million in GNW’s case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Victory Capital Holdings, Inc. (NASDAQ:VCTR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Genworth Financial Inc (NYSE:GNW) is more popular among hedge funds. Our overall hedge fund sentiment score for GNW is 89. 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. 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 returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on GNW as the stock returned 30.7% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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