Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Kinsale Capital Group, Inc. (NASDAQ:KNSL) a buy here? Hedge funds are buying. The number of long hedge fund bets increased by 2 in recent months. Our calculations also showed that KNSL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the new hedge fund action encompassing Kinsale Capital Group, Inc. (NASDAQ:KNSL).
Hedge fund activity in Kinsale Capital Group, Inc. (NASDAQ:KNSL)
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in KNSL over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Driehaus Capital held the most valuable stake in Kinsale Capital Group, Inc. (NASDAQ:KNSL), which was worth $26.3 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $6.2 million worth of shares. D E Shaw, AQR Capital Management, and Point72 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 Driehaus Capital allocated the biggest weight to Kinsale Capital Group, Inc. (NASDAQ:KNSL), around 0.86% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, setting aside 0.21 percent of its 13F equity portfolio to KNSL.
As industrywide interest jumped, some big names have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Kinsale Capital Group, Inc. (NASDAQ:KNSL). Point72 Asset Management had $3.4 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $1.3 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, Ronald Hua’s Qtron Investments, and Ken Griffin’s Citadel Investment Group.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Kinsale Capital Group, Inc. (NASDAQ:KNSL) but similarly valued. We will take a look at Verra Mobility Corporation (NASDAQ:VRRM), Commscope Holding Company Inc (NASDAQ:COMM), Sprouts Farmers Market Inc (NASDAQ:SFM), and SVMK Inc. (NASDAQ:SVMK). All of these stocks’ market caps are similar to KNSL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRRM | 15 | 146636 | -6 |
| COMM | 23 | 791413 | 3 |
| SFM | 23 | 325458 | 1 |
| SVMK | 24 | 277503 | 1 |
| Average | 21.25 | 385253 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $51 million in KNSL’s case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Verra Mobility Corporation (NASDAQ:VRRM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Kinsale Capital Group, Inc. (NASDAQ:KNSL) is even less popular than VRRM. Hedge funds dodged a bullet by taking a bearish stance towards KNSL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KNSL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KNSL investors were disappointed as the stock returned -1.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
