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Were Hedge Funds Right About The Unilever Group (UN)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. With this in mind let’s see whether The Unilever Group (NYSE:UN) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

The Unilever Group (NYSE:UN) investors should pay attention to a decrease in hedge fund sentiment recently. UN was in 15 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with UN holdings at the end of the previous quarter. Our calculations also showed that UN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action regarding The Unilever Group (NYSE:UN).

Hedge fund activity in The Unilever Group (NYSE:UN)

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in UN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in The Unilever Group (NYSE:UN) was held by Gardner Russo & Gardner, which reported holding $711 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $189.2 million position. Other investors bullish on the company included Fisher Asset Management, Citadel Investment Group, and Wallace Capital Management. In terms of the portfolio weights assigned to each position Gardner Russo & Gardner allocated the biggest weight to The Unilever Group (NYSE:UN), around 5.45% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, dishing out 2.18 percent of its 13F equity portfolio to UN.

Since The Unilever Group (NYSE:UN) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies who sold off their positions entirely last quarter. Intriguingly, John Osterweis’s Osterweis Capital Management dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $25.6 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $2.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to The Unilever Group (NYSE:UN). We will take a look at Bristol Myers Squibb Company (NYSE:BMY), The Unilever Group (NYSE:UL), McDonald’s Corporation (NYSE:MCD), and PetroChina Company Limited (NYSE:PTR). This group of stocks’ market valuations match UN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMY 122 7810013 61
UL 17 247925 2
MCD 57 1633049 5
PTR 13 94057 0
Average 52.25 2446261 17

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.25 hedge funds with bullish positions and the average amount invested in these stocks was $2446 million. That figure was $1009 million in UN’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 13 bullish hedge fund positions. The Unilever Group (NYSE:UN) is not the least popular stock in this group but hedge fund interest is still below average. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately UN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UN investors were disappointed as the stock returned -13.9% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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