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Were Hedge Funds Right About Sun Life Financial Inc. (SLF)?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Sun Life Financial Inc. (NYSE:SLF) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Sun Life Financial Inc. (NYSE:SLF) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. Sun Life Financial Inc. (NYSE:SLF) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 19. Our calculations also showed that SLF isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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. With all of this in mind we're going to analyze the new hedge fund action encompassing Sun Life Financial Inc. (NYSE:SLF).

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

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in SLF a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Noam Gottesman's GLG Partners has the most valuable position in Sun Life Financial Inc. (NYSE:SLF), worth close to $72.1 million, comprising 0.3% of its total 13F portfolio. Coming in second is CaaS Capital, led by Frank Fu, holding a $19.5 million call position; 0.2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions comprise Paul Marshall and Ian Wace's Marshall Wace LLP, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position GLG Partners allocated the biggest weight to Sun Life Financial Inc. (NYSE:SLF), around 0.32% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to SLF.

Judging by the fact that Sun Life Financial Inc. (NYSE:SLF) has witnessed falling interest from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds that elected to cut their entire stakes last quarter. At the top of the heap, D. E. Shaw's D E Shaw dropped the largest position of the "upper crust" of funds watched by Insider Monkey, valued at close to $13.9 million in stock. Peter Muller's fund, PDT Partners, also cut its stock, about $0.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let's go over hedge fund activity in other stocks similar to Sun Life Financial Inc. (NYSE:SLF). We will take a look at State Street Corporation (NYSE:STT), WEC Energy Group, Inc. (NYSE:WEC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), AMETEK, Inc. (NYSE:AME), ANSYS, Inc. (NASDAQ:ANSS), Otis Worldwide Corporation (NYSE:OTIS), and Valero Energy Corporation (NYSE:VLO). This group of stocks' market values are similar to SLF's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STT,32,866316,1 WEC,17,184448,-8 WLTW,66,5189453,8 AME,32,909796,1 ANSS,33,1503462,-7 OTIS,52,2750826,-7 VLO,41,462502,3 Average,39,1695258,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1695 million. That figure was $139 million in SLF's case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Sun Life Financial Inc. (NYSE:SLF) is even less popular than WEC. Our overall hedge fund sentiment score for SLF is 29.8. 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. Hedge funds dodged a bullet by taking a bearish stance towards SLF. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market again by 10.1 percentage points. Unfortunately SLF wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); SLF investors were disappointed as the stock returned 1.4% since the end of the first quarter (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 since 2019.

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