Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Union Pacific Corporation (NYSE:UNP).
Union Pacific Corporation (NYSE:UNP) has seen a decrease in support from the world’s most elite money managers recently. UNP was in 65 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 69 hedge funds in our database with UNP positions at the end of the previous quarter. Our calculations also showed that UNP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
John Armitage of Egerton 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s check out the fresh hedge fund action surrounding Union Pacific Corporation (NYSE:UNP).
What have hedge funds been doing with Union Pacific Corporation (NYSE:UNP)?
At Q4’s end, a total of 65 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UNP over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Soroban Capital Partners was the largest shareholder of Union Pacific Corporation (NYSE:UNP), with a stake worth $1028.3 million reported as of the end of September. Trailing Soroban Capital Partners was Egerton Capital Limited, which amassed a stake valued at $840.8 million. Lone Pine Capital, Citadel Investment Group, and Fisher Asset Management 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 Soroban Capital Partners allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 13.49% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 8.55 percent of its 13F equity portfolio to UNP.
Judging by the fact that Union Pacific Corporation (NYSE:UNP) has experienced falling interest from the smart money, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their entire stakes in the third quarter. Intriguingly, Renaissance Technologies cut the largest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $86.3 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $26.9 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Union Pacific Corporation (NYSE:UNP) but similarly valued. These stocks are ASML Holding N.V. (NASDAQ:ASML), Texas Instruments Incorporated (NASDAQ:TXN), BHP Billiton plc (NYSE:BBL), and International Business Machines Corp. (NYSE:IBM). This group of stocks’ market values resemble UNP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASML | 22 | 1133071 | 7 |
| TXN | 50 | 2386926 | -10 |
| BBL | 24 | 1238737 | 2 |
| IBM | 50 | 1289370 | 5 |
| Average | 36.5 | 1512026 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1512 million. That figure was $5313 million in UNP’s case. Texas Instruments Incorporated (NASDAQ:TXN) 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 22 bullish hedge fund positions. Compared to these stocks Union Pacific Corporation (NYSE:UNP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately UNP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNP were disappointed as the stock returned -10.8% during the first two months of 2020 (through March 2nd) 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
