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Hedge Funds Were Getting Burned By Principal Financial Group Inc (PFG) Before The Coronavirus

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. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Principal Financial Group Inc (NYSE:PFG).

Principal Financial Group Inc (NYSE:PFG) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as SK Telecom Co., Ltd. (NYSE:SKM), The Liberty SiriusXM Group (NASDAQ:LSXMK), and BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) to gather more data points. Our calculations also showed that PFG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

According to most shareholders, hedge funds are perceived as worthless, old financial vehicles of the past. While there are more than 8000 funds in operation today, Our researchers choose to focus on the top tier of this club, approximately 850 funds. These money managers manage bulk of the smart money’s total capital, and by monitoring their unrivaled stock picks, Insider Monkey has discovered many investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Keeping this in mind let’s take a look at the recent hedge fund action regarding Principal Financial Group Inc (NYSE:PFG).

How have hedgies been trading Principal Financial Group Inc (NYSE:PFG)?

At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in PFG 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.

Is PFG A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Prana Capital Management, managed by Peter Seuss, holds the most valuable position in Principal Financial Group Inc (NYSE:PFG). Prana Capital Management has a $20.9 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is John Overdeck and David Siegel of Two Sigma Advisors, with a $18.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish encompass Ian Simm’s Impax Asset Management, Israel Englander’s Millennium Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to Principal Financial Group Inc (NYSE:PFG), around 3.07% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to PFG.

Judging by the fact that Principal Financial Group Inc (NYSE:PFG) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that slashed their full holdings by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, worth close to $15.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $6.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Principal Financial Group Inc (NYSE:PFG). We will take a look at SK Telecom Co., Ltd. (NYSE:SKM), The Liberty SiriusXM Group (NASDAQ:LSXMK), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), and Korea Electric Power Corporation (NYSE:KEP). All of these stocks’ market caps are similar to PFG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SKM 6 135263 -1
LSXMK 54 3333126 5
BMRN 49 1937452 0
KEP 3 45485 -4
Average 28 1362832 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1363 million. That figure was $90 million in PFG’s case. The Liberty SiriusXM Group (NASDAQ:LSXMK) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Principal Financial Group Inc (NYSE:PFG) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PFG investors were disappointed as the stock returned -46.1% 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.

5 Most Popular Stocks Among Hedge Funds
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.

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