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Hedge Funds Are Nibbling On Manulife Financial Corporation (MFC)

Debasis Saha
·6 min read

In this article you are going to find out whether hedge funds think Manulife Financial Corporation (NYSE:MFC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Manulife Financial Corporation (NYSE:MFC) an exceptional stock to buy now? Prominent investors are in an optimistic mood. The number of long hedge fund positions advanced by 1 lately. Our calculations also showed that MFC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.

[caption id="attachment_26397" align="aligncenter" width="400"] Ray Dalio of Bridgewater Associates[/caption]

BRIDGEWATER ASSOCIATES
BRIDGEWATER ASSOCIATES

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. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the new hedge fund action encompassing Manulife Financial Corporation (NYSE:MFC).

What have hedge funds been doing with Manulife Financial Corporation (NYSE:MFC)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in MFC a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is MFC A Good Stock To Buy?
Is MFC A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Manulife Financial Corporation (NYSE:MFC), which was worth $54.3 million at the end of the third quarter. On the second spot was Heathbridge Capital Management which amassed $28.2 million worth of shares. Galibier Capital Management, Bridgewater Associates, and Balyasny 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 Galibier Capital Management allocated the biggest weight to Manulife Financial Corporation (NYSE:MFC), around 10.98% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, setting aside 7.56 percent of its 13F equity portfolio to MFC.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most outsized position in Manulife Financial Corporation (NYSE:MFC). Millennium Management had $2.3 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $1.6 million position during the quarter. The other funds with brand new MFC positions are Joel Greenblatt's Gotham Asset Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and D. E. Shaw's D E Shaw.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Manulife Financial Corporation (NYSE:MFC) but similarly valued. These stocks are Marriott International Inc (NYSE:MAR), Mercadolibre Inc (NASDAQ:MELI), Suncor Energy Inc. (NYSE:SU), and Republic Services, Inc. (NYSE:RSG). All of these stocks' market caps match MFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAR,47,1553974,10 MELI,60,2099088,8 SU,30,766498,-9 RSG,32,709358,6 Average,42.25,1282230,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $1282 million. That figure was $139 million in MFC's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Suncor Energy Inc. (NYSE:SU) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Manulife Financial Corporation (NYSE:MFC) is even less popular than SU. Hedge funds dodged a bullet by taking a bearish stance towards MFC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but managed to beat the market by 14.8 percentage points. Unfortunately MFC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MFC investors were disappointed as the stock returned 14.1% during the second quarter (through June 17th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.

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