Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Cincinnati Financial Corporation (NASDAQ:CINF) investors should pay attention to an increase in enthusiasm from smart money of late. CINF was in 22 hedge funds’ portfolios at the end of December. There were 11 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.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let’s analyze the recent hedge fund action surrounding 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 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CINF over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Cincinnati Financial Corporation (NASDAQ:CINF), which was worth $459.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $9.7 million worth of shares. Moreover, Prospector Partners, Renaissance Technologies, and Ancora Advisors were also bullish on Cincinnati Financial Corporation (NASDAQ:CINF), allocating a large percentage of their portfolios to this stock.
Consequently, some big names have been driving this bullishness. Cognios Capital, managed by John Brandmeyer, initiated the most outsized position in Cincinnati Financial Corporation (NASDAQ:CINF). Cognios Capital had $2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2 million position during the quarter. The following funds were also among the new CINF investors: Ray Dalio’s Bridgewater Associates, Jeffrey Talpins’s Element Capital Management, and Brandon Haley’s Holocene Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Cincinnati Financial Corporation (NASDAQ:CINF). These stocks are Synopsys, Inc. (NASDAQ:SNPS), Tenaris S.A. (NYSE:TS), The Cooper Companies, Inc. (NYSE:COO), and Principal Financial Group Inc (NASDAQ:PFG). This group of stocks’ market valuations are closest to CINF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNPS | 34 | 1091171 | 4 |
| TS | 13 | 371288 | -5 |
| COO | 21 | 1104178 | 3 |
| PFG | 18 | 98221 | 3 |
| Average | 21.5 | 666215 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $530 million in CINF’s case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 13 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately CINF wasn’t in this group. Hedge funds that bet on CINF were disappointed as the stock returned 10.6% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
