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Did Hedge Funds Drop The Ball On Horace Mann Educators Corporation (HMN) ?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Horace Mann Educators Corporation (NYSE:HMN).

Horace Mann Educators Corporation (NYSE:HMN) was in 12 hedge funds' portfolios at the end of the second quarter of 2019. HMN shareholders have witnessed a decrease in hedge fund sentiment of late. There were 14 hedge funds in our database with HMN positions at the end of the previous quarter. Our calculations also showed that HMN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the new hedge fund action regarding Horace Mann Educators Corporation (NYSE:HMN).

What does smart money think about Horace Mann Educators Corporation (NYSE:HMN)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in HMN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HMN Positions

According to Insider Monkey's hedge fund database, Ariel Investments, managed by John W. Rogers, holds the most valuable position in Horace Mann Educators Corporation (NYSE:HMN). Ariel Investments has a $9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies which holds a $6.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Noam Gottesman's GLG Partners, Ken Griffin's Citadel Investment Group and Gregg Moskowitz's Interval Partners.

Judging by the fact that Horace Mann Educators Corporation (NYSE:HMN) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. Intriguingly, Cliff Asness's AQR Capital Management dropped the largest stake of the "upper crust" of funds tracked by Insider Monkey, totaling close to $0.5 million in stock, and Mike Vranos's Ellington was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Horace Mann Educators Corporation (NYSE:HMN) but similarly valued. We will take a look at Valaris plc (NYSE:ESV), Global Net Lease, Inc. (NYSE:GNL), LGI Homes Inc (NASDAQ:LGIH), and Oasis Petroleum Inc. (NYSE:OAS). This group of stocks' market valuations resemble HMN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESV,28,433554,7 GNL,8,46148,-3 LGIH,12,127230,-2 OAS,21,295575,-6 Average,17.25,225627,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $31 million in HMN's case. Valaris plc (NYSE:ESV) is the most popular stock in this table. On the other hand Global Net Lease, Inc. (NYSE:GNL) is the least popular one with only 8 bullish hedge fund positions. Horace Mann Educators Corporation (NYSE:HMN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on HMN as the stock returned 15.7% during the same time frame and outperformed the market by an even larger margin.

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

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