Were Hedge Funds Right About UBS Group AG (UBS)?
How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding UBS Group AG (NYSE:UBS).
Is UBS Group AG (NYSE:UBS) a bargain? Hedge funds were taking a bearish view. The number of bullish hedge fund positions were cut by 2 recently. UBS Group AG (NYSE:UBS) was in 16 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 18. Our calculations also showed that UBS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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.
Rajiv Jain of GQG Partners
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Do Hedge Funds Think UBS Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in UBS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, GQG Partners, managed by Rajiv Jain, holds the biggest position in UBS Group AG (NYSE:UBS). GQG Partners has a $114.2 million position in the stock, comprising 0.4% of its 13F portfolio. On GQG Partners's heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $98.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Richard S. Pzena's Pzena Investment Management, Israel Englander's Millennium Management and Brian Ashford-Russell and Tim Woolley's Polar Capital. In terms of the portfolio weights assigned to each position CSat Investment Advisory allocated the biggest weight to UBS Group AG (NYSE:UBS), around 0.72% of its 13F portfolio. GQG Partners is also relatively very bullish on the stock, setting aside 0.42 percent of its 13F equity portfolio to UBS.
Since UBS Group AG (NYSE:UBS) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few hedgies who sold off their entire stakes by the end of the first quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $63.4 million in stock. Crispin Odey's fund, Odey Asset Management Group, also cut its stock, about $18.7 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds by the end of the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as UBS Group AG (NYSE:UBS) but similarly valued. These stocks are Eaton Corporation plc (NYSE:ETN), Boston Scientific Corporation (NYSE:BSX), Waste Management, Inc. (NYSE:WM), Emerson Electric Co. (NYSE:EMR), Humana Inc (NYSE:HUM), Northrop Grumman Corporation (NYSE:NOC), and Metlife Inc (NYSE:MET). This group of stocks' market valuations are similar to UBS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ETN,49,1094688,8 BSX,44,2884401,-14 WM,32,3290087,-5 EMR,45,796035,-1 HUM,53,2878475,-6 NOC,40,1510503,0 MET,32,1147122,-5 Average,42.1,1943044,-3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.1 hedge funds with bullish positions and the average amount invested in these stocks was $1943 million. That figure was $342 million in UBS's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks UBS Group AG (NYSE:UBS) is even less popular than WM. Our overall hedge fund sentiment score for UBS is 29.7. 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 UBS. 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 UBS wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); UBS investors were disappointed as the stock returned 5% 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.
