We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Travelers Companies Inc (NYSE:TRV) a bargain? Investors who are in the know are betting on the stock. The number of bullish hedge fund positions went up by 8 recently. Our calculations also showed that TRV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). TRV was in 34 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with TRV positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s analyze the key hedge fund action regarding Travelers Companies Inc (NYSE:TRV).
Hedge fund activity in Travelers Companies Inc (NYSE:TRV)
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the second quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in TRV a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of Travelers Companies Inc (NYSE:TRV), with a stake worth $886 million reported as of the end of September. Trailing Berkshire Hathaway was AQR Capital Management, which amassed a stake valued at $299.2 million. Polar Capital, Winton Capital Management, and Markel Gayner Asset 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 Prana Capital Management allocated the biggest weight to Travelers Companies Inc (NYSE:TRV), around 1.34% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, designating 0.71 percent of its 13F equity portfolio to TRV.
Consequently, specific money managers were leading the bulls’ herd. Prana Capital Management, managed by Peter Seuss, initiated the most outsized position in Travelers Companies Inc (NYSE:TRV). Prana Capital Management had $7.4 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Matthew Tewksbury’s Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s now review hedge fund activity in other stocks similar to Travelers Companies Inc (NYSE:TRV). We will take a look at Ferrari N.V. (NYSE:RACE), Keurig Dr Pepper Inc. (NASDAQ:KDP), FedEx Corporation (NYSE:FDX), and National Grid plc (NYSE:NGG). This group of stocks’ market values are closest to TRV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RACE | 32 | 1530799 | 2 |
| KDP | 20 | 669516 | -1 |
| FDX | 40 | 1369398 | 0 |
| NGG | 10 | 534812 | 2 |
| Average | 25.5 | 1026131 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1026 million. That figure was $1514 million in TRV’s case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 10 bullish hedge fund positions. Travelers Companies Inc (NYSE:TRV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately TRV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TRV were disappointed as the stock returned 16.4% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
