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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Metlife Inc (NYSE:MET) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Metlife Inc (NYSE:MET) the right investment to pursue these days? Hedge funds are selling. The number of long hedge fund bets decreased by 1 lately. Our calculations also showed that MET isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). MET was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 39 hedge funds in our database with MET positions at the end of the previous quarter.
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.
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 check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to view the fresh hedge fund action surrounding Metlife Inc (NYSE:MET).
How have hedgies been trading Metlife Inc (NYSE:MET)?
Heading into the first quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in MET a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Metlife Inc (NYSE:MET) was held by Diamond Hill Capital, which reported holding $498.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $449.6 million position. Other investors bullish on the company included Viking Global, Pzena Investment Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to Metlife Inc (NYSE:MET), around 2.77% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, earmarking 2.5 percent of its 13F equity portfolio to MET.
Since Metlife Inc (NYSE:MET) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Renaissance Technologies dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $17.6 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $9.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Metlife Inc (NYSE:MET). These stocks are American Electric Power Company, Inc. (NYSE:AEP), Emerson Electric Co. (NYSE:EMR), The Bank of New York Mellon Corporation (NYSE:BK), and Shopify Inc (NYSE:SHOP). This group of stocks’ market caps are closest to MET’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 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $3160 million. That figure was $2372 million in MET’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Shopify Inc (NYSE:SHOP) is the least popular one with only 30 bullish hedge fund positions. Metlife Inc (NYSE:MET) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately MET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MET investors were disappointed as the stock returned -34.1% 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.