Should You Follow The Smart Money’s Lead On Safety Insurance Group, Inc. (SAFT)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 5.2% in the 12 month-period that ended October 30, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular S&P 500 stocks among the hedge fund investors tracked by the Insider Monkey team returned 9.5% over the same period, which provides evidence that these money managers do have great stock picking abilities. Even more to that, 63% of these stocks managed to beat the S&P 500 Index. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Safety Insurance Group, Inc. (NASDAQ:SAFT).

Is Safety Insurance Group, Inc. (NASDAQ:SAFT) a bargain? Money managers are taking a bearish view. The number of long hedge fund positions was cut by 1 in recent months. Safety Insurance Group, Inc. was in 6 hedge funds’ portfolios at the end of the third quarter of 2015. There were 7 hedge funds in our database with Safety Insurance Group, Inc. positions at the end of the previous quarter. At the end of this article we will also compare Safety Insurance Group, Inc. to other stocks including Calgon Carbon Corporation (NYSE:CCC), Inland Real Estate Corporation (NYSE:IRC), and GTT Communications Inc (NYSE:GTT) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are assumed to be worthless, old financial vehicles of yesteryear. While there are greater than 8,000 funds in operation today, our experts hone in on the bigwigs of this group, about 700 funds. These investment experts administer most of all hedge funds’ total capital, and by tailing their finest picks, Insider Monkey has uncovered various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, let’s take a gander at the new action encompassing Safety Insurance Group, Inc. (NASDAQ:SAFT).

How are hedge funds trading Safety Insurance Group, Inc. (NASDAQ:SAFT)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a 14% drop from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or had already accumulated large positions).

According to Insider Monkey’s hedge fund database, Capital Returns Management, managed by Ron Bobman, holds the largest position in Safety Insurance Group, Inc. (NASDAQ:SAFT). Capital Returns Management has a $15.8 million position in the stock, comprising 6.7% of its 13F portfolio. On Capital Returns Management’s heels is Renaissance Technologies, with a $7 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism consist of Ken Griffin’s Citadel Investment Group, Cliff Asness’ AQR Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Because Safety Insurance Group, Inc. (NASDAQ:SAFT) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who sold off their full holdings last quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $0.5 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund also dumped about $0.5 million worth of shares. These moves are interesting, as total hedge fund interest was cut by 1 fund last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Safety Insurance Group, Inc. (NASDAQ:SAFT) but similarly valued. These stocks are Calgon Carbon Corporation (NYSE:CCC), Inland Real Estate Corporation (NYSE:IRC), GTT Communications Inc (NYSE:GTT), and Steiner Leisure Ltd (NASDAQ:STNR). All of these stocks’ market caps resemble Safety Insurance Group, Inc.’s market cap.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $29 million in Safety Insurance Group, Inc.’s case. Steiner Leisure Ltd (NASDAQ:STNR) is the most popular stock in this table. On the other hand Inland Real Estate Corporation (NYSE:IRC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Safety Insurance Group, Inc. (NASDAQ:SAFT) is even less popular than IRC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.