Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Chubb Limited (NYSE:CB).
Is Chubb Limited (NYSE:CB) a good investment now? The best stock pickers are taking a bearish view. The number of bullish hedge fund bets fell by 1 recently. Our calculations also showed that cb 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.
Sander Gerber of Hudson Bay Capital
Let’s take a look at the new hedge fund action regarding Chubb Limited (NYSE:CB).
How are hedge funds trading Chubb Limited (NYSE:CB)?
At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CB over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Polar Capital was the largest shareholder of Chubb Limited (NYSE:CB), with a stake worth $207.9 million reported as of the end of March. Trailing Polar Capital was Adage Capital Management, which amassed a stake valued at $85.5 million. AQR Capital Management, Polaris Capital Management, and Hudson Bay Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Chubb Limited (NYSE:CB) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds that elected to cut their positions entirely in the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $109.6 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $38 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Chubb Limited (NYSE:CB). We will take a look at Eni SpA (NYSE:E), Mitsubishi UFJ Financial Group Inc (NYSE:MUFG), Enterprise Products Partners L.P. (NYSE:EPD), and Westpac Banking Corporation (NYSE:WBK). This group of stocks’ market valuations resemble CB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| E | 9 | 99142 | 2 |
| MUFG | 14 | 47510 | 5 |
| EPD | 20 | 351509 | -5 |
| WBK | 6 | 33572 | -4 |
| Average | 12.25 | 132933 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $467 million in CB’s case. Enterprise Products Partners L.P. (NYSE:EPD) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Chubb Limited (NYSE:CB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CB as the stock returned 4.1% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
