Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
UGI Corp (NYSE:UGI) was in 20 hedge funds’ portfolios at the end of the first quarter of 2019. UGI has experienced a decrease in support from the world’s most elite money managers in recent months. There were 24 hedge funds in our database with UGI holdings at the end of the previous quarter. Our calculations also showed that UGI isn’t among the 30 most popular stocks among hedge funds.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s view the new hedge fund action surrounding UGI Corp (NYSE:UGI).
Hedge fund activity in UGI Corp (NYSE:UGI)
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UGI over the last 15 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of UGI Corp (NYSE:UGI), with a stake worth $145.6 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $123.7 million. Diamond Hill Capital, GLG Partners, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Because UGI Corp (NYSE:UGI) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few hedge funds who were dropping their positions entirely in the third quarter. At the top of the heap, Ray Dalio’s Bridgewater Associates said goodbye to the largest position of the 700 funds tracked by Insider Monkey, totaling close to $1.9 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dumped about $1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to UGI Corp (NYSE:UGI). These stocks are Avery Dennison Corporation (NYSE:AVY), FactSet Research Systems Inc. (NYSE:FDS), Tapestry, Inc. (NYSE:TPR), and Packaging Corporation Of America (NYSE:PKG). All of these stocks’ market caps resemble UGI’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 24 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $442 million in UGI’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 18 bullish hedge fund positions. UGI Corp (NYSE:UGI) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately UGI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UGI investors were disappointed as the stock returned -7.6% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.