Did Hedge Funds Make The Right Call On Hartford Financial Services Group Inc (HIG) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Hartford Financial Services Group Inc (NYSE:HIG) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hartford Financial Services Group Inc (NYSE:HIG) investors should be aware of an increase in hedge fund interest in recent months. HIG was in 37 hedge funds’ portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with HIG holdings at the end of the previous quarter. Our calculations also showed that HIG 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.

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. 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 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.

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Now let’s take a look at the key hedge fund action encompassing Hartford Financial Services Group Inc (NYSE:HIG).

What does smart money think about Hartford Financial Services Group Inc (NYSE:HIG)?

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HIG over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Hartford Financial Services Group Inc (NYSE:HIG), which was worth $171.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $121 million worth of shares. D E Shaw, AQR Capital Management, and Samlyn Capital 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 Capital Returns Management allocated the biggest weight to Hartford Financial Services Group Inc (NYSE:HIG), around 5.38% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, earmarking 3.7 percent of its 13F equity portfolio to HIG.

Consequently, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Hartford Financial Services Group Inc (NYSE:HIG). Arrowstreet Capital had $37.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $30.7 million position during the quarter. The other funds with brand new HIG positions are Dmitry Balyasny’s Balyasny Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hartford Financial Services Group Inc (NYSE:HIG) but similarly valued. We will take a look at CBRE Group, Inc. (NYSE:CBRE), MarketAxess Holdings Inc. (NASDAQ:MKTX), Ameriprise Financial, Inc. (NYSE:AMP), and Aptiv PLC (NYSE:APTV). This group of stocks’ market valuations resemble HIG’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $708 million in HIG’s case. CBRE Group, Inc. (NYSE:CBRE) is the most popular stock in this table. On the other hand Ameriprise Financial, Inc. (NYSE:AMP) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Hartford Financial Services Group Inc (NYSE:HIG) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately HIG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HIG were disappointed as the stock returned 10.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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