In this article we will check out the progression of hedge fund sentiment towards Unum Group (NYSE:UNM) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Unum Group (NYSE:UNM) has seen a decrease in activity from the world's largest hedge funds in recent months. UNM was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with UNM holdings at the end of the previous quarter. Our calculations also showed that UNM 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.
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 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.
[caption id="attachment_26388" align="aligncenter" width="396"] Lee Ainslie of Maverick Capital[/caption]
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 these. 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 we're going to take a gander at the latest hedge fund action encompassing Unum Group (NYSE:UNM).
How are hedge funds trading Unum Group (NYSE:UNM)?
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in UNM over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Unum Group (NYSE:UNM) was held by Arrowstreet Capital, which reported holding $63.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $27.4 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and GLG Partners. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Unum Group (NYSE:UNM), around 0.18% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to UNM.
Due to the fact that Unum Group (NYSE:UNM) has faced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of funds that decided to sell off their full holdings last quarter. At the top of the heap, David Harding's Winton Capital Management dumped the largest stake of the 750 funds monitored by Insider Monkey, worth about $15.7 million in stock. Minhua Zhang's fund, Weld Capital Management, also said goodbye to its stock, about $3.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Unum Group (NYSE:UNM). These stocks are Rayonier Inc. (NYSE:RYN), Community Bank System, Inc. (NYSE:CBU), MSC Industrial Direct Co Inc (NYSE:MSM), and SLM Corp (NASDAQ:SLM). This group of stocks' market valuations match UNM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RYN,13,271594,-1 CBU,11,12275,1 MSM,23,240052,-7 SLM,27,430376,-12 Average,18.5,238574,-4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $239 million. That figure was $160 million in UNM's case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 11 bullish hedge fund positions. Unum Group (NYSE:UNM) 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately UNM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on UNM were disappointed as the stock returned 23.4% 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.