We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards UBS Group AG (NYSE:UBS).
Hedge fund interest in UBS Group AG (NYSE:UBS) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Biogen Inc. (NASDAQ:BIIB), Northrop Grumman Corporation (NYSE:NOC), and Micron Technology, Inc. (NASDAQ:MU) to gather more data points.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to take a look at the latest hedge fund action surrounding UBS Group AG (NYSE:UBS).
Hedge fund activity in UBS Group AG (NYSE:UBS)
Heading into the second quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UBS over the last 15 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in UBS Group AG (NYSE:UBS), which was worth $604.5 million at the end of the first quarter. On the second spot was Pzena Investment Management which amassed $96.7 million worth of shares. Moreover, Renaissance Technologies, AQR Capital Management, and Polar Capital were also bullish on UBS Group AG (NYSE:UBS), allocating a large percentage of their portfolios to this stock.
Due to the fact that UBS Group AG (NYSE:UBS) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few fund managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $4.1 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund dropped about $0.3 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 go over hedge fund activity in other stocks similar to UBS Group AG (NYSE:UBS). We will take a look at Biogen Inc. (NASDAQ:BIIB), Northrop Grumman Corporation (NYSE:NOC), Micron Technology, Inc. (NASDAQ:MU), and Illumina, Inc. (NASDAQ:ILMN). This group of stocks’ market valuations are closest to UBS’s market valuation.
|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 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $2072 million. That figure was $751 million in UBS’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Northrop Grumman Corporation (NYSE:NOC) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks UBS Group AG (NYSE:UBS) is even less popular than NOC. Hedge funds dodged a bullet by taking a bearish stance towards UBS. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately UBS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UBS investors were disappointed as the stock returned 2.5% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.