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 Union Pacific Corporation (NYSE:UNP) and find out how it is affected by hedge funds' moves.
Union Pacific Corporation (NYSE:UNP) was in 62 hedge funds' portfolios at the end of September. UNP investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 64 hedge funds in our database with UNP positions at the end of the previous quarter. Our calculations also showed that UNP 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 21st century investor’s toolkit there are plenty of gauges investors put to use to evaluate their stock investments. A couple of the best gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the S&P 500 by a superb amount (see the details here).
[caption id="attachment_670753" align="aligncenter" width="473"] John Armitage of Egerton Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the recent hedge fund action regarding Union Pacific Corporation (NYSE:UNP).
How are hedge funds trading Union Pacific Corporation (NYSE:UNP)?
At Q3's end, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UNP over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Egerton Capital Limited held the most valuable stake in Union Pacific Corporation (NYSE:UNP), which was worth $1111.8 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $832.3 million worth of shares. Lone Pine Capital, Arrowstreet Capital, and Fisher Asset 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 Soroban Capital Partners allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 11.71% of its portfolio. Skylands Capital is also relatively very bullish on the stock, setting aside 8.99 percent of its 13F equity portfolio to UNP.
Seeing as Union Pacific Corporation (NYSE:UNP) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedgies that slashed their positions entirely in the third quarter. At the top of the heap, Andrew Immerman and Jeremy Schiffman's Palestra Capital Management cut the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $178.9 million in stock. Robert Boucai's fund, Newbrook Capital Advisors, also said goodbye to its stock, about $26.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Union Pacific Corporation (NYSE:UNP) but similarly valued. We will take a look at NextEra Energy, Inc. (NYSE:NEE), AbbVie Inc (NYSE:ABBV), Lockheed Martin Corporation (NYSE:LMT), and Broadcom Inc (NASDAQ:AVGO). All of these stocks' market caps match UNP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEE,41,1505214,1 ABBV,61,4434502,6 LMT,46,1782982,-2 AVGO,54,2515014,1 Average,50.5,2559428,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.5 hedge funds with bullish positions and the average amount invested in these stocks was $2559 million. That figure was $5198 million in UNP's case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand NextEra Energy, Inc. (NYSE:NEE) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks Union Pacific Corporation (NYSE:UNP) is more popular among hedge funds. 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. Hedge funds were also right about betting on UNP, though not to the same extent, as the stock returned 9.2% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.