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Hedge Funds Are Souring On AFLAC Incorporated (AFL)?

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In this article we will check out the progression of hedge fund sentiment towards AFLAC Incorporated (NYSE:AFL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

AFLAC Incorporated (NYSE:AFL) has experienced a decrease in enthusiasm from smart money lately. AFLAC Incorporated (NYSE:AFL) was in 33 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 36. Our calculations also showed that AFL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most shareholders, hedge funds are seen as slow, old investment vehicles of the past. While there are more than 8000 funds in operation at present, Our experts choose to focus on the masters of this club, about 850 funds. These hedge fund managers orchestrate the lion's share of the hedge fund industry's total capital, and by observing their best equity investments, Insider Monkey has uncovered various investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

John Rogers’ Top 10 Stock Picks
John Rogers’ Top 10 Stock Picks

John Rogers of Ariel Investments

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a gander at the latest hedge fund action regarding AFLAC Incorporated (NYSE:AFL).

Do Hedge Funds Think AFL Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AFL over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ariel Investments was the largest shareholder of AFLAC Incorporated (NYSE:AFL), with a stake worth $79.2 million reported as of the end of June. Trailing Ariel Investments was Citadel Investment Group, which amassed a stake valued at $68.2 million. Citadel Investment Group, Polar Capital, and AQR Capital 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 Mountain Road Advisors allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 1.33% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, setting aside 1.26 percent of its 13F equity portfolio to AFL.

Since AFLAC Incorporated (NYSE:AFL) has experienced a decline in interest from hedge fund managers, it's safe to say that there lies a certain "tier" of funds who sold off their entire stakes heading into Q3. It's worth mentioning that Peter Seuss's Prana Capital Management sold off the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth close to $11 million in stock, and Kevin Parker's Sustainable Insight Capital Management was right behind this move, as the fund cut about $2.3 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as AFLAC Incorporated (NYSE:AFL) but similarly valued. We will take a look at HP Inc. (NYSE:HPQ), Palo Alto Networks Inc (NYSE:PANW), Mizuho Financial Group Inc. (NYSE:MFG), Suncor Energy Inc. (NYSE:SU), Discover Financial Services (NYSE:DFS), The Hershey Company (NYSE:HSY), and ResMed Inc. (NYSE:RMD). This group of stocks' market caps are similar to AFL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HPQ,39,1276740,-4 PANW,69,4720641,5 MFG,6,15041,1 SU,32,1115960,-1 DFS,37,450985,-8 HSY,38,1229056,-4 RMD,26,428212,1 Average,35.3,1319519,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1320 million. That figure was $268 million in AFL's case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. AFLAC Incorporated (NYSE:AFL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AFL is 50.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on AFL as the stock returned 4.1% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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