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Were Hedge Funds Right About Loading Up On Genworth Financial Inc (GNW)?

Reymerlyn Martin
·6 min read

In this article you are going to find out whether hedge funds think Genworth Financial Inc (NYSE:GNW) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Genworth Financial Inc (NYSE:GNW) investors should be aware of an increase in hedge fund interest in recent months. Genworth Financial Inc (NYSE:GNW) was in 36 hedge funds' portfolios at the end of June. The all time high for this statistics is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with GNW holdings at the end of March. Our calculations also showed that GNW isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller
Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we're going to go over the fresh hedge fund action regarding Genworth Financial Inc (NYSE:GNW).

What does smart money think about Genworth Financial Inc (NYSE:GNW)?

At Q2's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards GNW over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Genworth Financial Inc (NYSE:GNW) was held by Miller Value Partners, which reported holding $30.6 million worth of stock at the end of June. It was followed by Shah Capital Management with a $19.6 million position. Other investors bullish on the company included Sonic Capital, Pentwater Capital Management, and Maso Capital. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to Genworth Financial Inc (NYSE:GNW), around 14.14% of its 13F portfolio. Shah Capital Management is also relatively very bullish on the stock, earmarking 11.78 percent of its 13F equity portfolio to GNW.

As aggregate interest increased, key hedge funds have been driving this bullishness. Beryl Capital Management, managed by David Alexander Witkin, assembled the most valuable position in Genworth Financial Inc (NYSE:GNW). Beryl Capital Management had $2.9 million invested in the company at the end of the quarter. Matthew Moskey and Friedrich Schulte-Hillen's Athos Capital also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Michael Gelband's ExodusPoint Capital, and Michael Hintze's CQS Cayman LP.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Genworth Financial Inc (NYSE:GNW) but similarly valued. These stocks are Safety Insurance Group, Inc. (NASDAQ:SAFT), Victory Capital Holdings, Inc. (NASDAQ:VCTR), Service Properties Trust (NASDAQ:SVC), Domtar Corporation (NYSE:UFS), Kaiser Aluminum Corp. (NASDAQ:KALU), Carpenter Technology Corporation (NYSE:CRS), and Sandy Spring Bancorp Inc. (NASDAQ:SASR). This group of stocks' market valuations are closest to GNW's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAFT,13,41971,1 VCTR,9,74304,1 SVC,21,54322,-2 UFS,27,136892,9 KALU,16,62214,0 CRS,16,59693,0 SASR,10,32787,-2 Average,16,66026,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $164 million in GNW's case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Victory Capital Holdings, Inc. (NASDAQ:VCTR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Genworth Financial Inc (NYSE:GNW) is more popular among hedge funds. Our overall hedge fund sentiment score for GNW is 89. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on GNW as the stock returned 70.1% since the end of June (through 10/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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