In this article we will check out the progression of hedge fund sentiment towards Union Pacific Corporation (NYSE:UNP) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Union Pacific Corporation (NYSE:UNP) the right pick for your portfolio? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets were cut by 2 in recent months. Our calculations also showed that UNP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 44 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.
John Armitage of Egerton Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the latest hedge fund action encompassing Union Pacific Corporation (NYSE:UNP).
What have hedge funds been doing with Union Pacific Corporation (NYSE:UNP)?
Heading into the second quarter of 2020, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 54 hedge funds held shares or bullish call options in UNP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Union Pacific Corporation (NYSE:UNP) was held by Soroban Capital Partners, which reported holding $707.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $528.4 million position. Other investors bullish on the company included Egerton Capital Limited, Holocene Advisors, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 12.96% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, dishing out 9.59 percent of its 13F equity portfolio to UNP.
Because Union Pacific Corporation (NYSE:UNP) has experienced bearish sentiment from hedge fund managers, logic holds that there exists a select few hedgies that elected to cut their entire stakes in the third quarter. Interestingly, Lone Pine Capital said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $584 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $117.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Union Pacific Corporation (NYSE:UNP) but similarly valued. We will take a look at Tesla Inc. (NASDAQ:TSLA), Danaher Corporation (NYSE:DHR), American Tower Corporation (NYSE:AMT), and TOTAL S.A. (NYSE:TOT). This group of stocks’ market values match UNP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSLA | 61 | 2124859 | 10 |
| DHR | 63 | 3193618 | 2 |
| AMT | 57 | 3819731 | 11 |
| TOT | 12 | 836773 | -5 |
| Average | 48.25 | 2493745 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $2494 million. That figure was $3443 million in UNP’s case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 12 bullish hedge fund positions. Union Pacific Corporation (NYSE:UNP) is not the most popular stock in this group but hedge fund interest is still above average. 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 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on UNP, though not to the same extent, as the stock returned 17.1% during the first two months of the second quarter (through May 22nd) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
