Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Unilever plc (NYSE:UL) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of March. At the end of this article we will also compare UL to other stocks including BP plc (NYSE:BP), Citigroup Inc. (NYSE:C), and McDonald's Corporation (NYSE:MCD) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? 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.
Let's take a glance at the recent hedge fund action regarding Unilever plc (NYSE:UL).
Hedge fund activity in Unilever plc (NYSE:UL)
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in UL 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.
Among these funds, Arrowstreet Capital held the most valuable stake in Unilever plc (NYSE:UL), which was worth $264.7 million at the end of the first quarter. On the second spot was Markel Gayner Asset Management which amassed $88.2 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Wallace Capital Management were also bullish on Unilever plc (NYSE:UL), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Unilever plc (NYSE:UL) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who were dropping their full holdings last quarter. Interestingly, D. E. Shaw's D E Shaw dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising about $8 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $0.8 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Unilever plc (NYSE:UL). We will take a look at BP plc (NYSE:BP), Citigroup Inc. (NYSE:C), McDonald's Corporation (NYSE:MCD), and TOTAL S.A. (NYSE:TOT). This group of stocks' market valuations are closest to UL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BP,29,1139916,-5 C,87,9189925,-3 MCD,54,3120539,6 TOT,13,971886,4 Average,45.75,3605567,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $3606 million. That figure was $396 million in UL's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Unilever plc (NYSE:UL) is even less popular than TOT. Hedge funds clearly dropped the ball on UL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on UL as the stock returned 9.1% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.