At Insider Monkey we follow around 700 of the best-performing investors and even though many of them lost money in the last couple of months (70% of hedge funds lost money in October whereas S&P 500 ETF lost about 7%), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to analyze the latest hedge fund action encompassing UBS Group AG (NYSE:UBS).
What does the smart money think about UBS Group AG (NYSE:UBS)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UBS over the last 13 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their holdings significantly (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 $755.9 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $124.6 million worth of shares. Moreover, Polar Capital, Renaissance Technologies, and Citadel Investment Group were also bullish on UBS Group AG (NYSE:UBS), allocating a large percentage of their portfolios to this stock.
Because UBS Group AG (NYSE:UBS) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few money managers that elected to cut their positions entirely last quarter. At the top of the heap, David Tepper’s Appaloosa Management LP sold off the biggest stake of all the hedgies watched by Insider Monkey, worth about $105.7 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also dropped its stock, about $32.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to UBS Group AG (NYSE:UBS). These stocks are Colgate-Palmolive Company (NYSE:CL), CME Group Inc (NASDAQ:CME), Vodafone Group Plc (NASDAQ:VOD), and Duke Energy Corporation (NYSE:DUK). This group of stocks’ market caps resemble UBS’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 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.48 billion. That figure was $928 million in UBS’s case. CME Group Inc (NASDAQ:CME) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks UBS Group AG (NYSE:UBS) is even less popular than DUK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.