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Were Hedge Funds Right About Union Pacific Corporation (UNP)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Union Pacific Corporation (NYSE:UNP).

Union Pacific Corporation (NYSE:UNP) was in 65 hedge funds’ portfolios at the end of the fourth quarter of 2019. UNP has seen a decrease in activity from the world’s largest hedge funds of late. There were 69 hedge funds in our database with UNP holdings at the end of the previous quarter. Our calculations also showed that UNP 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 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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind we’re going to view the new hedge fund action encompassing Union Pacific Corporation (NYSE:UNP).

How are hedge funds trading Union Pacific Corporation (NYSE:UNP)?

At Q4’s end, a total of 65 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 55 hedge funds held shares or bullish call options in UNP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is UNP A Good Stock To Buy?

Among these funds, Soroban Capital Partners held the most valuable stake in Union Pacific Corporation (NYSE:UNP), which was worth $1028.3 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $840.8 million worth of shares. Lone Pine Capital, Citadel Investment Group, and Fisher 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 Soroban Capital Partners allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 13.49% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, designating 8.55 percent of its 13F equity portfolio to UNP.

Seeing as Union Pacific Corporation (NYSE:UNP) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely in the third quarter. Intriguingly, Renaissance Technologies said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, worth close to $86.3 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $26.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Union Pacific Corporation (NYSE:UNP) but similarly valued. These stocks are ASML Holding N.V. (NASDAQ:ASML), Texas Instruments Incorporated (NASDAQ:TXN), BHP Billiton plc (NYSE:BBL), and International Business Machines Corp. (NYSE:IBM). This group of stocks’ market caps are closest to UNP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASML 22 1133071 7
TXN 50 2386926 -10
BBL 24 1238737 2
IBM 50 1289370 5
Average 36.5 1512026 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1512 million. That figure was $5313 million in UNP’s case. Texas Instruments Incorporated (NASDAQ:TXN) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Union Pacific Corporation (NYSE:UNP) 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately UNP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UNP were disappointed as the stock returned -18.4% during the three months of 2020 (through April 20th) 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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