Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Union Pacific Corporation (NYSE:UNP).
Union Pacific Corporation (NYSE:UNP) investors should pay attention to an increase in hedge fund sentiment lately. UNP was in 64 hedge funds' portfolios at the end of the second quarter of 2019. There were 54 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 (see the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the new hedge fund action regarding Union Pacific Corporation (NYSE:UNP).
What have hedge funds been doing with Union Pacific Corporation (NYSE:UNP)?
At Q2's end, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. By comparison, 49 hedge funds held shares or bullish call options in UNP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Egerton Capital Limited held the most valuable stake in Union Pacific Corporation (NYSE:UNP), which was worth $1015.9 million at the end of the second quarter. On the second spot was Lone Pine Capital which amassed $833.9 million worth of shares. Moreover, Soroban Capital Partners, Arrowstreet Capital, and D E Shaw were also bullish on Union Pacific Corporation (NYSE:UNP), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds have jumped into Union Pacific Corporation (NYSE:UNP) headfirst. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Union Pacific Corporation (NYSE:UNP). Holocene Advisors had $129.5 million invested in the company at the end of the quarter. Richard Chilton's Chilton Investment Company also made a $98.1 million investment in the stock during the quarter. The other funds with new positions in the stock are John Brennan's Sirios Capital Management, Stuart J. Zimmer's Zimmer Partners, and Guy Shahar's DSAM Partners.
Let's go over hedge fund activity in other stocks similar to Union Pacific Corporation (NYSE:UNP). We will take a look at Thermo Fisher Scientific Inc. (NYSE:TMO), Accenture Plc (NYSE:ACN), salesforce.com, inc. (NYSE:CRM), and HDFC Bank Limited (NYSE:HDB). This group of stocks' market valuations are closest to UNP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMO,72,4141477,4 ACN,38,1028621,-2 CRM,82,5803927,-11 HDB,27,1159846,3 Average,54.75,3033468,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.75 hedge funds with bullish positions and the average amount invested in these stocks was $3033 million. That figure was $5598 million in UNP's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 27 bullish hedge fund positions. Union Pacific Corporation (NYSE:UNP) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UNP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UNP were disappointed as the stock returned -3.6% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.