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Were Hedge Funds Right About Souring On Universal Corp (UVV)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Universal Corp (NYSE:UVV).

Universal Corp (NYSE:UVV) has seen a decrease in activity from the world’s largest hedge funds lately. UVV was in 15 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with UVV positions at the end of the previous quarter. Our calculations also showed that UVV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. 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

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the latest hedge fund action encompassing Universal Corp (NYSE:UVV).

Hedge fund activity in Universal Corp (NYSE:UVV)

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in UVV 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.

The largest stake in Universal Corp (NYSE:UVV) was held by Renaissance Technologies, which reported holding $56.8 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $33.5 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Universal Corp (NYSE:UVV), around 0.18% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to UVV.

Seeing as Universal Corp (NYSE:UVV) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers who sold off their full holdings heading into Q4. Intriguingly, Roger Ibbotson’s Zebra Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling about $0.4 million in stock. Mike Vranos’s fund, Ellington, also dropped its stock, about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Universal Corp (NYSE:UVV). These stocks are Cardtronics plc (NASDAQ:CATM), Kite Realty Group Trust (NYSE:KRG), Gentherm Inc (NASDAQ:THRM), and Viad Corp (NYSE:VVI). This group of stocks’ market caps match UVV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CATM 19 351967 0
KRG 10 60361 4
THRM 15 67220 0
VVI 15 109600 -1
Average 14.75 147287 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $111 million in UVV’s case. Cardtronics plc (NASDAQ:CATM) is the most popular stock in this table. On the other hand Kite Realty Group Trust (NYSE:KRG) is the least popular one with only 10 bullish hedge fund positions. Universal Corp (NYSE:UVV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UVV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UVV were disappointed as the stock returned -3.4% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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