Were Hedge Funds Right About Souring On AFLAC Incorporated (NYSE:AFL)?

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards AFLAC Incorporated (NYSE:AFL) and see how it was affected.

AFLAC Incorporated (NYSE:AFL) has experienced a decrease in support from the world’s most elite money managers of late. Our calculations also showed that AFL isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most investors, hedge funds are seen as slow, outdated investment tools of years past. While there are greater than 8000 funds in operation today, We choose to focus on the elite of this group, approximately 750 funds. It is estimated that this group of investors direct the majority of the hedge fund industry’s total capital, and by keeping an eye on their first-class investments, Insider Monkey has unearthed a few investment strategies that have historically outperformed the market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by nearly 5 percentage points annually since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Steven Cohen

We’re going to go over the recent hedge fund action encompassing AFLAC Incorporated (NYSE:AFL).

What have hedge funds been doing with AFLAC Incorporated (NYSE:AFL)?

At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in AFL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).


More specifically, AQR Capital Management was the largest shareholder of AFLAC Incorporated (NYSE:AFL), with a stake worth $514.6 million reported as of the end of September. Trailing AQR Capital Management was Balyasny Asset Management, which amassed a stake valued at $83 million. Ariel Investments, Citadel Investment Group, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as AFLAC Incorporated (NYSE:AFL) has faced declining sentiment from the smart money, we can see that there exists a select few fund managers who sold off their full holdings by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $34.7 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund said goodbye to about $12.4 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). We will take a look at Energy Transfer L.P. (NYSE:ET), Target Corporation (NYSE:TGT), Delta Air Lines, Inc. (NYSE:DAL), and Kinder Morgan Inc (NYSE:KMI). This group of stocks’ market valuations match AFL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ET 30 741381 8
TGT 40 1209924 -2
DAL 73 6625539 6
KMI 48 1658607 -2
Average 47.75 2558863 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.75 hedge funds with bullish positions and the average amount invested in these stocks was $2559 million. That figure was $862 million in AFL’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Energy Transfer L.P. (NYSE:ET) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks AFLAC Incorporated (NYSE:AFL) is even less popular than ET. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money for the most part isn’t behind this stock. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately AFL wasn’t in this group. Hedge funds that bet on AFL were disappointed as the stock returned 10.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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