It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Universal Corp (NYSE:UVV).
Is Universal Corp (NYSE:UVV) a buy here? Prominent investors are taking a bearish view. The number of long hedge fund positions retreated by 1 lately. Our calculations also showed that UVV isn’t among the 30 most popular stocks among hedge funds. UVV was in 15 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 16 hedge funds in our database with UVV holdings at the end of the previous quarter.
If you’d ask most shareholders, hedge funds are assumed to be slow, outdated financial vehicles of the past. While there are more than 8000 funds trading today, We look at the masters of this group, around 750 funds. It is estimated that this group of investors watch over most of all hedge funds’ total asset base, and by monitoring their finest equity investments, Insider Monkey has deciphered numerous investment strategies that have historically defeated the market. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
We’re going to check out the key hedge fund action surrounding Universal Corp (NYSE:UVV).
What does the smart money think about Universal Corp (NYSE:UVV)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UVV over the last 14 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Universal Corp (NYSE:UVV) was held by Renaissance Technologies, which reported holding $38.5 million worth of stock at the end of December. It was followed by Pzena Investment Management with a $23.8 million position. Other investors bullish on the company included Royce & Associates, GLG Partners, and AQR Capital Management.
Seeing as Universal Corp (NYSE:UVV) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds that decided to sell off their full holdings by the end of the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $0.3 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its stock, about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Universal Corp (NYSE:UVV) but similarly valued. We will take a look at Orchard Therapeutics plc (NASDAQ:ORTX), Walker & Dunlop Inc. (NYSE:WD), Arcosa, Inc. (NYSE:ACA), and Zai Lab Limited (NASDAQ:ZLAB). This group of stocks’ market values match UVV’s market value.
|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 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $104 million in UVV’s case. Arcosa, Inc. (NYSE:ACA) is the most popular stock in this table. On the other hand Walker & Dunlop Inc. (NYSE:WD) is the least popular one with only 11 bullish hedge fund positions. Universal Corp (NYSE:UVV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately UVV wasn’t nearly as popular as these 15 stock and hedge funds that were betting on UVV were disappointed as the stock returned -1.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.