Were Hedge Funds Right About Crowding Union Pacific Corporation (UNP)?
Is Union Pacific Corporation (NYSE:UNP) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Union Pacific Corporation (NYSE:UNP) investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. Union Pacific Corporation (NYSE:UNP) was in 68 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 69. There were 63 hedge funds in our database with UNP positions at the end of the first quarter. Our calculations also showed that UNP 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Aaron Cowen of Suvretta Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. Now we're going to go over the new hedge fund action surrounding Union Pacific Corporation (NYSE:UNP).
How have hedgies been trading Union Pacific Corporation (NYSE:UNP)?
At second quarter's end, a total of 68 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 64 hedge funds held shares or bullish call options in UNP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Union Pacific Corporation (NYSE:UNP) was held by Fisher Asset Management, which reported holding $681.2 million worth of stock at the end of September. It was followed by Egerton Capital Limited with a $590 million position. Other investors bullish on the company included Soroban Capital Partners, D E Shaw, and Suvretta Capital Management. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 8.87% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, setting aside 7.24 percent of its 13F equity portfolio to UNP.
As aggregate interest increased, some big names were leading the bulls' herd. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, created the most valuable position in Union Pacific Corporation (NYSE:UNP). Senator Investment Group had $76.1 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also initiated a $66.8 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Anand Parekh's Alyeska Investment Group, and Todd J. Kantor's Encompass Capital Advisors.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Union Pacific Corporation (NYSE:UNP) but similarly valued. These stocks are American Tower Corporation (NYSE:AMT), Shopify Inc (NYSE:SHOP), Linde plc (NYSE:LIN), Philip Morris International Inc. (NYSE:PM), International Business Machines Corp. (NYSE:IBM), Citigroup Inc. (NYSE:C), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks' market caps match UNP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMT,61,4407292,4 SHOP,57,5916379,14 LIN,52,3643095,-1 PM,53,2574980,5 IBM,46,918051,5 C,96,6229205,10 CHTR,96,11227561,-8 Average,65.9,4988080,4.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 65.9 hedge funds with bullish positions and the average amount invested in these stocks was $4988 million. That figure was $3686 million in UNP's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand International Business Machines Corp. (NYSE:IBM) is the least popular one with only 46 bullish hedge fund positions. Union Pacific Corporation (NYSE:UNP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNP is 61.6. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on UNP as the stock returned 24.7% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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