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Is UGI Corp (UGI) Going to Burn These Hedge Funds?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority 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’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like UGI Corp (NYSE:UGI).

UGI Corp (NYSE:UGI) has experienced a decrease in hedge fund interest of late. Our calculations also showed that UGI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the fresh hedge fund action encompassing UGI Corp (NYSE:UGI).

What have hedge funds been doing with UGI Corp (NYSE:UGI)?

Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UGI over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in UGI Corp (NYSE:UGI) was held by Diamond Hill Capital, which reported holding $103.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $81.5 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to UGI Corp (NYSE:UGI), around 3.44% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, earmarking 0.55 percent of its 13F equity portfolio to UGI.

Due to the fact that UGI Corp (NYSE:UGI) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies that slashed their positions entirely by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of all the hedgies followed by Insider Monkey, totaling close to $7.7 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $1.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as UGI Corp (NYSE:UGI) but similarly valued. These stocks are E*TRADE Financial Corporation (NASDAQ:ETFC), West Pharmaceutical Services Inc. (NYSE:WST), Globe Life Inc. (NYSE:GL), and VICI Properties Inc. (NYSE:VICI). This group of stocks’ market caps are closest to UGI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETFC 39 875017 -4
WST 30 494330 6
GL 19 828753 0
VICI 37 2262889 -22
Average 31.25 1115247 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1115 million. That figure was $317 million in UGI’s case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks UGI Corp (NYSE:UGI) is even less popular than GL. Hedge funds dodged a bullet by taking a bearish stance towards UGI. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UGI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UGI investors were disappointed as the stock returned -13.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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