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Were Hedge Funds Right About CNO Financial Group Inc (CNO)?

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  • CNO

In this article we will take a look at whether hedge funds think CNO Financial Group Inc (NYSE:CNO) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is CNO Financial Group Inc (NYSE:CNO) a bargain? The smart money was in an optimistic mood. The number of long hedge fund positions improved by 1 in recent months. CNO Financial Group Inc (NYSE:CNO) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that CNO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 17 hedge funds in our database with CNO positions at the end of the fourth quarter.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Chuck Royce
Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now let's view the recent hedge fund action surrounding CNO Financial Group Inc (NYSE:CNO).

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

At first quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in CNO over the last 23 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is CNO A Good Stock To Buy?
Is CNO A Good Stock To Buy?

More specifically, Pzena Investment Management was the largest shareholder of CNO Financial Group Inc (NYSE:CNO), with a stake worth $178.6 million reported as of the end of March. Trailing Pzena Investment Management was Paradice Investment Management, which amassed a stake valued at $108.3 million. Arrowstreet Capital, Royce & Associates, and Huber 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 Paradice Investment Management allocated the biggest weight to CNO Financial Group Inc (NYSE:CNO), around 5.2% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 3.85 percent of its 13F equity portfolio to CNO.

As aggregate interest increased, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most outsized position in CNO Financial Group Inc (NYSE:CNO). Balyasny Asset Management had $6 million invested in the company at the end of the quarter. Mika Toikka's AlphaCrest Capital Management also made a $0.6 million investment in the stock during the quarter. The only other fund with a new position in the stock is D. E. Shaw's D E Shaw.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CNO Financial Group Inc (NYSE:CNO) but similarly valued. We will take a look at Ingevity Corporation (NYSE:NGVT), Cathay General Bancorp (NASDAQ:CATY), Turquoise Hill Resources Ltd (NYSE:TRQ), Canaan Inc. (NASDAQ:CAN), CNX Resources Corporation (NYSE:CNX), Arvinas, Inc. (NASDAQ:ARVN), and Brinker International, Inc. (NYSE:EAT). All of these stocks' market caps resemble CNO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGVT,20,280427,-4 CATY,12,130599,2 TRQ,13,575312,1 CAN,9,47017,5 CNX,23,607003,-2 ARVN,28,365585,-6 EAT,31,475033,3 Average,19.4,354425,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $380 million in CNO's case. Brinker International, Inc. (NYSE:EAT) is the most popular stock in this table. On the other hand Canaan Inc. (NASDAQ:CAN) is the least popular one with only 9 bullish hedge fund positions. CNO Financial Group Inc (NYSE:CNO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNO is 49.9. 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. 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 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately CNO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CNO investors were disappointed as the stock returned -6% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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