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Were Hedge Funds Right About Genworth Financial Inc (GNW)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Genworth Financial Inc (NYSE:GNW) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hedge fund interest in Genworth Financial Inc (NYSE:GNW) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GNW to other stocks including Option Care Health, Inc. (NASDAQ:OPCH), Spectrum Brands Holdings, Inc. (NYSE:SPB), and LCI Industries (NYSE:LCII) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the fresh hedge fund action encompassing Genworth Financial Inc (NYSE:GNW).

What does smart money think about Genworth Financial Inc (NYSE:GNW)?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in GNW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, TIG Advisors was the largest shareholder of Genworth Financial Inc (NYSE:GNW), with a stake worth $49.6 million reported as of the end of September. Trailing TIG Advisors was Miller Value Partners, which amassed a stake valued at $47.4 million. Pentwater Capital Management, Shah Capital Management, and Maso Capital 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 Litespeed Management allocated the biggest weight to Genworth Financial Inc (NYSE:GNW), around 21.08% of its 13F portfolio. Shah Capital Management is also relatively very bullish on the stock, earmarking 17.42 percent of its 13F equity portfolio to GNW.

Since Genworth Financial Inc (NYSE:GNW) has faced a decline in interest from the smart money, we can see that there was a specific group of fund managers that elected to cut their full holdings heading into Q4. It’s worth mentioning that Frank Brosens’s Taconic Capital said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $7.2 million in stock, and David MacKnight’s One Fin Capital Management was right behind this move, as the fund said goodbye to about $1.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Genworth Financial Inc (NYSE:GNW) but similarly valued. We will take a look at Option Care Health, Inc. (NASDAQ:OPCH), Spectrum Brands Holdings, Inc. (NYSE:SPB), LCI Industries (NYSE:LCII), and Moog Inc (NYSE:MOG). All of these stocks’ market caps are similar to GNW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OPCH 7 12260 -7
SPB 24 207647 -21
LCII 15 77500 -2
MOG 20 68438 -1
Average 16.5 91461 -7.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $259 million in GNW’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand Option Care Health, Inc. (NASDAQ:OPCH) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Genworth Financial Inc (NYSE:GNW) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately GNW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GNW were disappointed as the stock returned -30.4% during the second quarter 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.