It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Metlife Inc (NYSE:MET).
Metlife Inc (NYSE:MET) has seen an increase in activity from the world's largest hedge funds in recent months. MET was in 31 hedge funds' portfolios at the end of the first quarter of 2019. There were 24 hedge funds in our database with MET positions at the end of the previous quarter. Our calculations also showed that MET isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to go over the latest hedge fund action encompassing Metlife Inc (NYSE:MET).
How are hedge funds trading Metlife Inc (NYSE:MET)?
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in MET a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Metlife Inc (NYSE:MET) was held by Diamond Hill Capital, which reported holding $454.7 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $316.6 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Masters Capital Management.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Metlife Inc (NYSE:MET). Arrowstreet Capital had $11 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $7.7 million position during the quarter. The other funds with new positions in the stock are Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, Paul Tudor Jones's Tudor Investment Corp, and Dmitry Balyasny's Balyasny Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Metlife Inc (NYSE:MET) but similarly valued. We will take a look at Energy Transfer L.P. (NYSE:ET), Marathon Petroleum Corp (NYSE:MPC), ABB Ltd (NYSE:ABB), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks' market caps are closest to MET's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ET,28,765288,-2 MPC,65,3263062,-7 ABB,15,347062,2 SHW,42,1153461,-8 Average,37.5,1382218,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $1382 million. That figure was $1201 million in MET's case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 15 bullish hedge fund positions. Metlife Inc (NYSE:MET) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on MET as the stock returned 12.3% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.