Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Cincinnati Financial Corporation (NASDAQ:CINF).
Cincinnati Financial Corporation (NASDAQ:CINF) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that CINF 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.
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Ken Fisher of Fisher Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the new hedge fund action encompassing Cincinnati Financial Corporation (NASDAQ:CINF).
What have hedge funds been doing with Cincinnati Financial Corporation (NASDAQ:CINF)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in CINF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cincinnati Financial Corporation (NASDAQ:CINF) was held by Select Equity Group, which reported holding $442.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $17.8 million position. Other investors bullish on the company included D E Shaw, Winton Capital Management, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Cincinnati Financial Corporation (NASDAQ:CINF), around 2.99% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 1.17 percent of its 13F equity portfolio to CINF.
As industrywide interest jumped, key money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in Cincinnati Financial Corporation (NASDAQ:CINF). Adage Capital Management had $0.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Ronald Hua’s Qtron Investments, George Zweig, Shane Haas and Ravi Chander’s Signition LP, and John Brandmeyer’s Cognios Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cincinnati Financial Corporation (NASDAQ:CINF) but similarly valued. We will take a look at CGI Inc. (NYSE:GIB), Liberty Broadband Corp (NASDAQ:LBRDK), Liberty Broadband Corp (NASDAQ:LBRDA), and Pembina Pipeline Corp (NYSE:PBA). This group of stocks’ market caps match CINF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GIB | 14 | 300448 | 0 |
| LBRDK | 40 | 3494094 | 0 |
| LBRDA | 21 | 694238 | 1 |
| PBA | 10 | 101496 | -2 |
| Average | 21.25 | 1147569 | -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 $1148 million. That figure was $565 million in CINF’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 10 bullish hedge fund positions. Cincinnati Financial Corporation (NASDAQ:CINF) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CINF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CINF were disappointed as the stock returned -8.2% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
