We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 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 UMB Financial Corporation (NASDAQ:UMBF).
UMB Financial Corporation (NASDAQ:UMBF) shareholders have witnessed a decrease in enthusiasm from smart money of late. Our calculations also showed that UMBF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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.
[caption id="attachment_758450" align="aligncenter" width="450"] Martin Whitman of Third Avenue Management[/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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action encompassing UMB Financial Corporation (NASDAQ:UMBF).
How have hedgies been trading UMB Financial Corporation (NASDAQ:UMBF)?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in UMBF 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.
More specifically, Fisher Asset Management was the largest shareholder of UMB Financial Corporation (NASDAQ:UMBF), with a stake worth $21.1 million reported as of the end of September. Trailing Fisher Asset Management was Millennium Management, which amassed a stake valued at $14.3 million. Renaissance Technologies, Citadel Investment Group, and Third Avenue 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 Third Avenue Management allocated the biggest weight to UMB Financial Corporation (NASDAQ:UMBF), around 0.71% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to UMBF.
Seeing as UMB Financial Corporation (NASDAQ:UMBF) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of funds that elected to cut their entire stakes heading into Q4. At the top of the heap, Benjamin A. Smith's Laurion Capital Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, worth an estimated $1.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund dumped about $0.3 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as UMB Financial Corporation (NASDAQ:UMBF) but similarly valued. These stocks are Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), John Bean Technologies Corporation (NYSE:JBT), and Darling Ingredients Inc. (NYSE:DAR). This group of stocks' market valuations match UMBF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHI,3,13063,-2 HOMB,11,12529,-2 JBT,14,102280,4 DAR,24,226792,8 Average,13,88666,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $78 million in UMBF's case. Darling Ingredients Inc. (NYSE:DAR) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. UMB Financial Corporation (NASDAQ:UMBF) 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 UMBF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UMBF were disappointed as the stock returned 4.2% 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.