There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Universal Corp (NYSE:UVV).
Is Universal Corp (NYSE:UVV) a healthy stock for your portfolio? Prominent investors are buying. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that uvv isn't among the 30 most popular stocks among hedge funds. UVV was in 17 hedge funds' portfolios at the end of the first quarter of 2019. There were 15 hedge funds in our database with UVV positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to check out the fresh hedge fund action surrounding Universal Corp (NYSE:UVV).
What does smart money think about Universal Corp (NYSE:UVV)?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in UVV a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Universal Corp (NYSE:UVV), which was worth $38.5 million at the end of the first quarter. On the second spot was Pzena Investment Management which amassed $27.3 million worth of shares. Moreover, Royce & Associates, GLG Partners, and AQR Capital Management were also bullish on Universal Corp (NYSE:UVV), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Universal Corp (NYSE:UVV). Balyasny Asset Management had $0.5 million invested in the company at the end of the quarter. Roy Vermus and Shlomi Bracha's Noked Capital also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new UVV position is David Harding's Winton Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Universal Corp (NYSE:UVV) but similarly valued. We will take a look at Talos Energy, Inc. (NYSE:TALO), Evoqua Water Technologies Corp. (NYSE:AQUA), Sleep Number Corporation (NASDAQ:SNBR), and Noble Midstream Partners LP (NYSE:NBLX). This group of stocks' market caps match UVV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TALO,17,92558,4 AQUA,13,105564,1 SNBR,20,192016,2 NBLX,4,7623,-2 Average,13.5,99440,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $104 million in UVV's case. Sleep Number Corporation (NASDAQ:SNBR) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. Universal Corp (NYSE:UVV) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately UVV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UVV were disappointed as the stock returned 3.7% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.