It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Genworth Financial Inc (NYSE:GNW).
Genworth Financial Inc (NYSE:GNW) investors should pay attention to an increase in enthusiasm from smart money of late. GNW was in 29 hedge funds' portfolios at the end of the third quarter of 2019. There were 22 hedge funds in our database with GNW positions at the end of the previous quarter. Our calculations also showed that GNW 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.
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 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 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_88925" align="aligncenter" width="450"] Bill Miller of Miller Value Partners[/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 latest hedge fund action surrounding Genworth Financial Inc (NYSE:GNW).
How have hedgies been trading Genworth Financial Inc (NYSE:GNW)?
At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GNW over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Miller Value Partners was the largest shareholder of Genworth Financial Inc (NYSE:GNW), with a stake worth $86.9 million reported as of the end of September. Trailing Miller Value Partners was Pentwater Capital Management, which amassed a stake valued at $36.3 million. Shah Capital Management, Alpine Associates, and Citadel Investment Group 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 Shah Capital Management allocated the biggest weight to Genworth Financial Inc (NYSE:GNW), around 15.75% of its portfolio. Litespeed Management is also relatively very bullish on the stock, designating 14.37 percent of its 13F equity portfolio to GNW.
As industrywide interest jumped, specific money managers have been driving this bullishness. TIG Advisors, managed by Carl Tiedemann and Michael Tiedemann, created the most valuable position in Genworth Financial Inc (NYSE:GNW). TIG Advisors had $14 million invested in the company at the end of the quarter. Parvinder Thiara's Athanor Capital also made a $3.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Florian Kronawitter's White Square Capital, and Jonathan Soros's JS Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Genworth Financial Inc (NYSE:GNW) but similarly valued. These stocks are Artisan Partners Asset Management Inc (NYSE:APAM), Inter Parfums, Inc. (NASDAQ:IPAR), Senior Housing Properties Trust (NASDAQ:SNH), and Trustmark Corp (NASDAQ:TRMK). All of these stocks' market caps are closest to GNW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APAM,13,206432,-2 IPAR,13,74430,-4 SNH,13,24349,0 TRMK,14,24310,0 Average,13.25,82380,-1.5 [/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 $82 million. That figure was $267 million in GNW's case. Trustmark Corp (NASDAQ:TRMK) is the most popular stock in this table. On the other hand Artisan Partners Asset Management Inc (NYSE:APAM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Genworth Financial Inc (NYSE:GNW) 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. Unfortunately GNW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GNW were disappointed as the stock returned -10% 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.