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Metlife Inc (MET) Fell Out Of Favor With Hedge Funds

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Metlife Inc (NYSE:MET) and determine whether hedge funds skillfully traded this stock.

Is Metlife Inc (NYSE:MET) a buy, sell, or hold? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets shrunk by 3 lately. Metlife Inc (NYSE:MET) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 50. Our calculations also showed that MET isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Metlife Inc (NYSE:MET).

Hedge fund activity in Metlife Inc (NYSE:MET)

Heading into the third quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in MET a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Metlife Inc (NYSE:MET), with a stake worth $284.4 million reported as of the end of September. Trailing Diamond Hill Capital was Pzena Investment Management, which amassed a stake valued at $217 million. Arrowstreet Capital, AQR Capital Management, and GLG Partners 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 Masters Capital Management allocated the biggest weight to Metlife Inc (NYSE:MET), around 4.13% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 1.68 percent of its 13F equity portfolio to MET.

Due to the fact that Metlife Inc (NYSE:MET) has experienced falling interest from the smart money, we can see that there is a sect of funds who were dropping their entire stakes heading into Q3. Interestingly, Mike Masters’s Masters Capital Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $6.1 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund cut about $6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Metlife Inc (NYSE:MET) but similarly valued. We will take a look at Xcel Energy Inc (NASDAQ:XEL), HCA Healthcare Inc (NYSE:HCA), NXP Semiconductors NV (NASDAQ:NXPI), DocuSign, Inc. (NASDAQ:DOCU), Splunk Inc (NASDAQ:SPLK), Orange SA (NYSE:ORAN), and Phillips 66 (NYSE:PSX). This group of stocks’ market valuations match MET’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XEL 23 273421 -1
HCA 71 2240096 -16
NXPI 67 2214977 15
DOCU 57 2585727 10
SPLK 49 874330 12
ORAN 3 6480 -2
PSX 42 362906 -1
Average 44.6 1222562 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.6 hedge funds with bullish positions and the average amount invested in these stocks was $1223 million. That figure was $971 million in MET’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Metlife Inc (NYSE:MET) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MET is 41.2. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately MET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MET investors were disappointed as the stock returned 7.7% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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