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Is Sun Life Financial Inc. (SLF) Going to Burn These Hedge Funds?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Sun Life Financial Inc. (NYSE:SLF).

Sun Life Financial Inc. (NYSE:SLF) investors should be aware of an increase in activity from the world's largest hedge funds of late. SLF was in 12 hedge funds' portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with SLF positions at the end of the previous quarter. Our calculations also showed that SLF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a look at the fresh hedge fund action encompassing Sun Life Financial Inc. (NYSE:SLF).

Hedge fund activity in Sun Life Financial Inc. (NYSE:SLF)

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in SLF a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in Sun Life Financial Inc. (NYSE:SLF), which was worth $87.8 million at the end of the third quarter. On the second spot was GLG Partners which amassed $43 million worth of shares. D E Shaw, Renaissance Technologies, 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 Arrowstreet Capital allocated the biggest weight to Sun Life Financial Inc. (NYSE:SLF), around 0.2% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to SLF.

As one would reasonably expect, key money managers were leading the bulls' herd. PEAK6 Capital Management, managed by Matthew Hulsizer, created the most outsized position in Sun Life Financial Inc. (NYSE:SLF). PEAK6 Capital Management had $0.1 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also initiated a $0 million position during the quarter.

Let's also examine hedge fund activity in other stocks similar to Sun Life Financial Inc. (NYSE:SLF). These stocks are Square, Inc. (NYSE:SQ), Southern Copper Corporation (NYSE:SCCO), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), and AutoZone, Inc. (NYSE:AZO). This group of stocks' market values are closest to SLF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SQ,44,2375472,-9 SCCO,13,175117,-2 ERIC,20,352546,1 AZO,35,1328778,-2 Average,28,1057978,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1058 million. That figure was $260 million in SLF's case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Sun Life Financial Inc. (NYSE:SLF) is even less popular than SCCO. Hedge funds dodged a bullet by taking a bearish stance towards SLF. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SLF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SLF investors were disappointed as the stock returned 2.8% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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