Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Principal Financial Group Inc (NASDAQ:PFG).
Is Principal Financial Group Inc (NASDAQ:PFG) undervalued? The best stock pickers are becoming hopeful. The number of long hedge fund positions inched up by 2 in recent months. Our calculations also showed that PFG isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 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.
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. We're going to go over the fresh hedge fund action surrounding Principal Financial Group Inc (NASDAQ:PFG).
What have hedge funds been doing with Principal Financial Group Inc (NASDAQ:PFG)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in PFG a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Principal Financial Group Inc (NASDAQ:PFG) was held by Two Sigma Advisors, which reported holding $46.1 million worth of stock at the end of March. It was followed by GLG Partners with a $19.7 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Impax Asset Management.
Consequently, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Principal Financial Group Inc (NASDAQ:PFG). Balyasny Asset Management had $4.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $2 million position during the quarter. The other funds with new positions in the stock are George Zweig, Shane Haas and Ravi Chander's Signition LP, Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, and Mike Vranos's Ellington.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Principal Financial Group Inc (NASDAQ:PFG) but similarly valued. We will take a look at STMicroelectronics N.V. (NYSE:STM), Citizens Financial Group Inc (NYSE:CFG), Franco-Nevada Corporation (NYSE:FNV), and Marvell Technology Group Ltd. (NASDAQ:MRVL). This group of stocks' market values resemble PFG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STM,13,111744,-1 CFG,39,1255204,-2 FNV,18,532557,-1 MRVL,37,1148127,5 Average,26.75,761908,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $762 million. That figure was $113 million in PFG's case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 13 bullish hedge fund positions. Principal Financial Group Inc (NASDAQ:PFG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 PFG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PFG investors were disappointed as the stock returned -0.3% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.