The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) and find out how it is affected by hedge funds' moves.
Is Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) a buy, sell, or hold? The smart money is turning less bullish. The number of long hedge fund positions shrunk by 2 recently. Our calculations also showed that MUFG 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/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. We're going to analyze the fresh hedge fund action encompassing Mitsubishi UFJ Financial Group Inc (NYSE:MUFG).
How have hedgies been trading Mitsubishi UFJ Financial Group Inc (NYSE:MUFG)?
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in MUFG a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) was held by Renaissance Technologies, which reported holding $21.5 million worth of stock at the end of September. It was followed by LMR Partners with a $21.2 million position. Other investors bullish on the company included Fisher Asset Management, D E Shaw, and Springbok Capital. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Mitsubishi UFJ Financial Group Inc (NYSE:MUFG), around 1.05% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to MUFG.
Since Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that slashed their positions entirely in the third quarter. Interestingly, Matthew Tewksbury's Stevens Capital Management said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $0.2 million in stock. Minhua Zhang's fund, Weld Capital Management, also said goodbye to its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) but similarly valued. We will take a look at Banco Bradesco SA (NYSE:BBD), China Life Insurance Company Limited (NYSE:LFC), Dominion Energy, Inc. (NYSE:D), and Canadian National Railway Company (NYSE:CNI). This group of stocks' market caps are closest to MUFG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBD,16,595049,2 LFC,8,34563,0 D,42,766846,3 CNI,27,2084810,-1 Average,23.25,870317,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $870 million. That figure was $60 million in MUFG's case. Dominion Energy, Inc. (NYSE:D) is the most popular stock in this table. On the other hand China Life Insurance Company Limited (NYSE:LFC) is the least popular one with only 8 bullish hedge fund positions. Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 MUFG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MUFG investors were disappointed as the stock returned 4.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.