We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards United Parcel Service, Inc. (NYSE:UPS) and determine whether hedge funds skillfully traded this stock.
United Parcel Service, Inc. (NYSE:UPS) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. United Parcel Service, Inc. (NYSE:UPS) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 48. Our calculations also showed that UPS 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.
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 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 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.
Ray Dalio of Bridgewater AssociatesRay Dalio
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a gander at the latest hedge fund action surrounding United Parcel Service, Inc. (NYSE:UPS).
Hedge fund activity in United Parcel Service, Inc. (NYSE:UPS)
At the end of June, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in UPS a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in United Parcel Service, Inc. (NYSE:UPS), which was worth $503.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $169.5 million worth of shares. Two Sigma Advisors, PEAK6 Capital Management, and Adage 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to United Parcel Service, Inc. (NYSE:UPS), around 2.82% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, designating 2.01 percent of its 13F equity portfolio to UPS.
Judging by the fact that United Parcel Service, Inc. (NYSE:UPS) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of fund managers that elected to cut their full holdings by the end of the second quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital cut the biggest investment of all the hedgies followed by Insider Monkey, valued at an estimated $31.3 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dropped its stock, about $30.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 11 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks similar to United Parcel Service, Inc. (NYSE:UPS). We will take a look at Anheuser-Busch InBev SA/NV (NYSE:BUD), HSBC Holdings plc (NYSE:HSBC), JD.Com Inc (NASDAQ:JD), Raytheon Technologies Corp (NYSE:RTX), 3M Company (NYSE:MMM), British American Tobacco plc (NYSE:BTI), and Starbucks Corporation (NASDAQ:SBUX). This group of stocks’ market values are closest to UPS’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BUD,17,860874,0 HSBC,10,384518,-4 JD,87,11211241,-3 RTX,59,2951712,-3 MMM,42,1038241,-2 BTI,11,824986,1 SBUX,54,2683454,-14 Average,40,2850718,-3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $2851 million. That figure was $782 million in UPS’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 10 bullish hedge fund positions. United Parcel Service, Inc. (NYSE:UPS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UPS is 34.7. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on UPS as the stock returned 48.1% since the end of June and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.