Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Unilever PLC (NYSE:UL).
Is UL a good stock to buy now? Unilever PLC (NYSE:UL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that UL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Costco Wholesale Corporation (NASDAQ:COST), ASML Holding N.V. (NASDAQ:ASML), and AbbVie Inc (NYSE:ABBV) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are viewed as slow, old financial vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers hone in on the aristocrats of this club, approximately 850 funds. These hedge fund managers command most of the hedge fund industry’s total capital, and by tracking their highest performing picks, Insider Monkey has deciphered numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a look at the new hedge fund action surrounding Unilever PLC (NYSE:UL).
Do Hedge Funds Think UL Is A Good Stock To Buy Now?
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UL over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Unilever PLC (NYSE:UL), with a stake worth $113.2 million reported as of the end of September. Trailing Arrowstreet Capital was Pittencrieff Partners – Gabalex Capital, which amassed a stake valued at $21.6 million. Millennium Management, Wallace Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pittencrieff Partners – Gabalex Capital allocated the biggest weight to Unilever PLC (NYSE:UL), around 6.04% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, designating 2.44 percent of its 13F equity portfolio to UL.
Since Unilever PLC (NYSE:UL) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who were dropping their entire stakes last quarter. At the top of the heap, Renaissance Technologies cut the largest investment of all the hedgies watched by Insider Monkey, comprising an estimated $14.6 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Unilever PLC (NYSE:UL) but similarly valued. These stocks are Costco Wholesale Corporation (NASDAQ:COST), ASML Holding N.V. (NASDAQ:ASML), AbbVie Inc (NYSE:ABBV), Danaher Corporation (NYSE:DHR), Amgen, Inc. (NASDAQ:AMGN), Broadcom Inc (NASDAQ:AVGO), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks’ market caps are closest to UL’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 58.4 hedge funds with bullish positions and the average amount invested in these stocks was $3126 million. That figure was $160 million in UL’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Unilever PLC (NYSE:UL) is even less popular than ASML. Our overall hedge fund sentiment score for UL is 26.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards UL. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market again by 16.2 percentage points. Unfortunately UL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UL investors were disappointed as the stock returned -4.2% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.