Hedge Funds Are Buying Brown & Brown, Inc. (NYSE:BRO)

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Brown & Brown, Inc. (NYSE:BRO) shareholders have witnessed an increase in enthusiasm from smart money of late. BRO was in 21 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with BRO positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as CBOE Holdings, Inc (NASDAQ:CBOE), Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH), and B/E Aerospace Inc (NASDAQ:BEAV) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Hedge fund activity in Brown & Brown, Inc. (NYSE:BRO)

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a rise of 40% from the second quarter of 2016. By comparison, 17 hedge funds held shares or bullish call options in BRO heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the most valuable position in Brown & Brown, Inc. (NYSE:BRO), worth close to $119.5 million. The second most bullish fund manager is Robert Joseph Caruso of Select Equity Group, with a $34.1 million position. Other peers that hold long positions encompass Dmitry Balyasny’s Balyasny Asset Management, and Brian Ashford-Russell and Tim Woolley’s Polar Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Brown & Brown, Inc. (NYSE:BRO) headfirst. Select Equity Group, led by Robert Joseph Caruso, initiated the largest position in Brown & Brown, Inc. (NYSE:BRO). Select Equity Group had $34.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $18.9 million position during the quarter. The other funds with new positions in the stock are Glenn Russell Dubin’s Highbridge Capital Management, George Hall’s Clinton Group, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s now review hedge fund activity in other stocks similar to Brown & Brown, Inc. (NYSE:BRO). We will take a look at CBOE Holdings, Inc (NASDAQ:CBOE), Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH), B/E Aerospace Inc (NASDAQ:BEAV), and Kinross Gold Corporation (USA) (NYSE:KGC). This group of stocks’ market caps resemble BRO’s market cap.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $276 million in BRO’s case. B/E Aerospace Inc (NASDAQ:BEAV) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP Holdings LLC (NYSEMKT:CQH) is the least popular one with only 19 bullish hedge fund positions. Brown & Brown, Inc. (NYSE:BRO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard BEAV might be a better candidate to consider taking a long position in.

Disclosure: None