Were Hedge Funds Right About Piling Into United Parcel Service, Inc. (UPS)?
The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtUnited Parcel Service, Inc. (NYSE:UPS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
United Parcel Service, Inc. (NYSE:UPS) investors should pay attention to an increase in hedge fund sentiment in recent months. UPS was in 48 hedge funds' portfolios at the end of March. There were 42 hedge funds in our database with UPS positions at the end of the previous quarter. Our calculations also showed that UPS isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_340081" align="aligncenter" width="400"]
Phill Gross of Adage Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a gander at the recent hedge fund action encompassing United Parcel Service, Inc. (NYSE:UPS).
How are hedge funds trading United Parcel Service, Inc. (NYSE:UPS)?
Heading into the second quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UPS over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of United Parcel Service, Inc. (NYSE:UPS), with a stake worth $422.8 million reported as of the end of September. Trailing Bill & Melinda Gates Foundation Trust was Citadel Investment Group, which amassed a stake valued at $124.2 million. Two Sigma Advisors, Adage Capital Management, and Citadel Investment Group 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 Scopus Asset Management allocated the biggest weight to United Parcel Service, Inc. (NYSE:UPS), around 2.62% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, dishing out 2.44 percent of its 13F equity portfolio to UPS.
Now, key money managers have jumped into United Parcel Service, Inc. (NYSE:UPS) headfirst. Samlyn Capital, managed by Robert Pohly, established the most outsized position in United Parcel Service, Inc. (NYSE:UPS). Samlyn Capital had $31.3 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $14.7 million investment in the stock during the quarter. The other funds with brand new UPS positions are Ian Simm's Impax Asset Management, Benjamin A. Smith's Laurion Capital Management, and Christian Leone's Luxor Capital Group.
Let's also examine hedge fund activity in other stocks similar to United Parcel Service, Inc. (NYSE:UPS). These stocks are 3M Company (NYSE:MMM), British American Tobacco plc (NYSE:BTI), CVS Health Corporation (NYSE:CVS), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks' market valuations are closest to UPS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMM,44,516510,-2 BTI,10,681088,1 CVS,71,1273110,13 QCOM,60,1621172,-7 Average,46.25,1022970,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $1023 million. That figure was $843 million in UPS's case. CVS Health Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 10 bullish hedge fund positions. United Parcel Service, Inc. (NYSE:UPS) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on UPS, though not to the same extent, as the stock returned 20.3% during the second quarter and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
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