The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards UniFirst Corp (NYSE:UNF).
Is UniFirst Corp (NYSE:UNF) ready to rally soon? The smart money is taking a pessimistic view. The number of long hedge fund bets dropped by 4 recently. Our calculations also showed that UNF isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the fresh hedge fund action encompassing UniFirst Corp (NYSE:UNF).
Hedge fund activity in UniFirst Corp (NYSE:UNF)
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in UNF 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.
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in UniFirst Corp (NYSE:UNF). Royce & Associates has a $14.9 million position in the stock, comprising 0.2% of its 13F portfolio. On Royce & Associates's heels is Echo Street Capital Management, managed by Greg Poole, which holds a $12.1 million position; 0.3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Clint Carlson's Carlson Capital, Panayotis Takis Sparaggis's Alkeon Capital Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to UniFirst Corp (NYSE:UNF), around 0.42% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, designating 0.28 percent of its 13F equity portfolio to UNF.
Seeing as UniFirst Corp (NYSE:UNF) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there were a few funds that slashed their entire stakes last quarter. Interestingly, Israel Englander's Millennium Management cut the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $8.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $1.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as UniFirst Corp (NYSE:UNF) but similarly valued. We will take a look at Watts Water Technologies Inc (NYSE:WTS), Avista Corp (NYSE:AVA), Hamilton Lane Incorporated (NASDAQ:HLNE), and Companhia Paranaense de Energia (NYSE:ELP). This group of stocks' market caps are closest to UNF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTS,19,237163,0 AVA,18,145437,3 HLNE,9,68042,-1 ELP,7,44533,0 Average,13.25,123794,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $76 million in UNF's case. Watts Water Technologies Inc (NYSE:WTS) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia (NYSE:ELP) is the least popular one with only 7 bullish hedge fund positions. UniFirst Corp (NYSE:UNF) 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 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately UNF wasn't nearly as popular as these 10 stocks and hedge funds that were betting on UNF were disappointed as the stock returned 15.6% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.