“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Selective Insurance Group, Inc. (NASDAQ:SIGI) and see how it was affected.
Is Selective Insurance Group, Inc. (NASDAQ:SIGI) undervalued? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets shrunk by 2 recently. Our calculations also showed that SIGI isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Platt of Bluecrest Capital Management
We’re going to check out the key hedge fund action regarding Selective Insurance Group, Inc. (NASDAQ:SIGI).
What have hedge funds been doing with Selective Insurance Group, Inc. (NASDAQ:SIGI)?
At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in SIGI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Prospector Partners held the most valuable stake in Selective Insurance Group, Inc. (NASDAQ:SIGI), which was worth $8.9 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $5.2 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and GLG Partners were also bullish on Selective Insurance Group, Inc. (NASDAQ:SIGI), allocating a large percentage of their portfolios to this stock.
Due to the fact that Selective Insurance Group, Inc. (NASDAQ:SIGI) has faced bearish sentiment from the smart money, it’s safe to say that there was a specific group of fund managers that slashed their positions entirely in the third quarter. It’s worth mentioning that Minhua Zhang’s Weld Capital Management sold off the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $0.9 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund cut about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Selective Insurance Group, Inc. (NASDAQ:SIGI) but similarly valued. We will take a look at LiveRamp Holdings, Inc. (NYSE:RAMP), Bank OZK (NASDAQ:OZK), Enstar Group Ltd. (NASDAQ:ESGR), and PBF Energy Inc (NYSE:PBF). This group of stocks’ market caps resemble SIGI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RAMP | 23 | 323059 | 5 |
| OZK | 20 | 256803 | 2 |
| ESGR | 11 | 348751 | 2 |
| PBF | 22 | 342765 | 4 |
| Average | 19 | 317845 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $318 million. That figure was $29 million in SIGI’s case. LiveRamp Holdings, Inc. (NYSE:RAMP) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 11 bullish hedge fund positions. Selective Insurance Group, Inc. (NASDAQ:SIGI) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on SIGI as the stock returned 21.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
