Was The Smart Money Right About United Parcel Service, Inc. (UPS)?

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 United Parcel Service, Inc. (NYSE:UPS).

United Parcel Service, Inc. (NYSE:UPS) has seen a decrease in support from the world’s most elite money managers recently. United Parcel Service, Inc. (NYSE:UPS) was in 48 hedge funds’ portfolios at the end of December. The all time high for this statistic is 57. There were 57 hedge funds in our database with UPS positions at the end of the third quarter. Our calculations also showed that UPS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to go over the key hedge fund action surrounding United Parcel Service, Inc. (NYSE:UPS).

Do Hedge Funds Think UPS Is A Good Stock To Buy Now?

At the end of December, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the third quarter of 2020. On the other hand, there were a total of 42 hedge funds with a bullish position in UPS a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in United Parcel Service, Inc. (NYSE:UPS), which was worth $762.1 million at the end of the fourth quarter. On the second spot was Adage Capital Management which amassed $133.7 million worth of shares. Millennium Management, AQR Capital Management, and Impax 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 Cartenna Capital allocated the biggest weight to United Parcel Service, Inc. (NYSE:UPS), around 5.36% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, earmarking 3.41 percent of its 13F equity portfolio to UPS.

Seeing as United Parcel Service, Inc. (NYSE:UPS) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers who were dropping their entire stakes in the fourth quarter. At the top of the heap, Eashwar Krishnan’s Tybourne Capital Management sold off the largest position of the 750 funds followed by Insider Monkey, totaling an estimated $203.7 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $45.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 9 funds in the fourth quarter.

Let’s now review hedge fund activity in other stocks similar to United Parcel Service, Inc. (NYSE:UPS). These stocks are Union Pacific Corporation (NYSE:UNP), Bristol Myers Squibb Company (NYSE:BMY), Linde plc (NYSE:LIN), Shopify Inc (NYSE:SHOP), Anheuser-Busch InBev SA/NV (NYSE:BUD), JD.Com Inc (NASDAQ:JD), and Royal Dutch Shell plc (NYSE:RDS). This group of stocks’ market caps resemble UPS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.6 hedge funds with bullish positions and the average amount invested in these stocks was $5665 million. That figure was $1254 million in UPS’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) is the least popular one with only 18 bullish hedge fund positions. United Parcel Service, Inc. (NYSE:UPS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UPS is 34.5. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on UPS as the stock returned 21.8% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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