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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Cincinnati Financial Corporation (NASDAQ:CINF).
Cincinnati Financial Corporation (NASDAQ:CINF) was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. CINF investors should pay attention to an increase in activity from the world’s largest hedge funds of late. There were 24 hedge funds in our database with CINF positions at the end of the previous quarter. Our calculations also showed that CINF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action encompassing Cincinnati Financial Corporation (NASDAQ:CINF).
How are hedge funds trading Cincinnati Financial Corporation (NASDAQ:CINF)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CINF over the last 18 quarters. So, let’s find out 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 $382.6 million worth of stock at the end of September. It was followed by Winton Capital Management with a $23.5 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Voleon Capital. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Cincinnati Financial Corporation (NASDAQ:CINF), around 2.41% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, earmarking 2.34 percent of its 13F equity portfolio to CINF.
As one would reasonably expect, some big names have jumped into Cincinnati Financial Corporation (NASDAQ:CINF) headfirst. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, initiated the most outsized position in Cincinnati Financial Corporation (NASDAQ:CINF). Voleon Capital had $18.7 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $2.1 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital, Ran Pang’s Quantamental Technologies, and Michael Gelband’s ExodusPoint Capital.
Let’s now review 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 MGM Resorts International (NYSE:MGM), Nucor Corporation (NYSE:NUE), 0, and Credicorp Ltd. (NYSE:BAP). This group of stocks’ market valuations match CINF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MGM | 50 | 2230713 | -2 |
| NUE | 26 | 237288 | -2 |
| PEAK | 26 | 525191 | -3 |
| BAP | 22 | 612424 | -6 |
| Average | 31 | 901404 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $901 million. That figure was $543 million in CINF’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Cincinnati Financial Corporation (NASDAQ:CINF) is not the least popular stock in this group but hedge fund interest is still below average. 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on CINF, though not to the same extent, as the stock returned -25.3% during the same time period and outperformed the market.
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.
