Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Chubb Limited (NYSE:CB) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Chubb Limited (NYSE:CB) undervalued? Money managers are taking a pessimistic view. The number of long hedge fund positions were cut by 3 recently. Our calculations also showed that CB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a look at the recent hedge fund action regarding Chubb Limited (NYSE:CB).
How have hedgies been trading Chubb Limited (NYSE:CB)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in CB a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Brian Ashford-Russell and Tim Woolley’s Polar Capital has the largest position in Chubb Limited (NYSE:CB), worth close to $185.6 million, accounting for 1.6% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $130.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Phill Gross and Robert Atchinson’s Adage Capital Management, Bernard Horn’s Polaris Capital Management and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital. In terms of the portfolio weights assigned to each position Voleon Capital allocated the biggest weight to Chubb Limited (NYSE:CB), around 2.49% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 2.04 percent of its 13F equity portfolio to CB.
Since Chubb Limited (NYSE:CB) has faced falling interest from the smart money, it’s easy to see that there was a specific group of money managers that slashed their positions entirely in the third quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $71.4 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $31.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Chubb Limited (NYSE:CB) but similarly valued. We will take a look at PNC Financial Services Group Inc. (NYSE:PNC), Banco Santander, S.A. (NYSE:SAN), The Bank of Nova Scotia (NYSE:BNS), and Dominion Resources, Inc. (NYSE:D). This group of stocks’ market values resemble CB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PNC | 42 | 2157090 | 0 |
| SAN | 21 | 637200 | 0 |
| BNS | 16 | 413736 | 0 |
| D | 37 | 773242 | -8 |
| Average | 29 | 995317 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $995 million. That figure was $588 million in CB’s case. PNC Financial Services Group Inc. (NYSE:PNC) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 16 bullish hedge fund positions. Chubb Limited (NYSE:CB) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately CB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CB investors were disappointed as the stock returned -15.7% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
