Is Reinsurance Group of America Inc (NYSE:RGA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Reinsurance Group of America Inc (NYSE:RGA) was in 25 hedge funds’ portfolios at the end of September. RGA has experienced a decrease in support from the world’s most elite money managers of late. There were 26 hedge funds in our database with RGA holdings at the end of the previous quarter. Our calculations also showed that RGA 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.
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 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. 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.
Dmitry Balyasny of Balyasny Asset Managemnet
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 take a peek at the fresh hedge fund action encompassing Reinsurance Group of America Inc (NYSE:RGA).
Hedge fund activity in Reinsurance Group of America Inc (NYSE:RGA)
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RGA over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Reinsurance Group of America Inc (NYSE:RGA), worth close to $188.6 million, comprising 0.2% of its total 13F portfolio. Coming in second is Ric Dillon of Diamond Hill Capital, with a $71.1 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism include Brian Ashford-Russell and Tim Woolley’s Polar Capital, Ken Griffin’s Citadel Investment Group and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to Reinsurance Group of America Inc (NYSE:RGA), around 0.69% of its portfolio. Polar Capital is also relatively very bullish on the stock, designating 0.51 percent of its 13F equity portfolio to RGA.
Seeing as Reinsurance Group of America Inc (NYSE:RGA) has faced bearish sentiment from the smart money, it’s safe to say that there was a specific group of hedgies that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $1.8 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Reinsurance Group of America Inc (NYSE:RGA). We will take a look at PulteGroup, Inc. (NYSE:PHM), NRG Energy Inc (NYSE:NRG), EPAM Systems Inc (NYSE:EPAM), and Carvana Co. (NYSE:CVNA). All of these stocks’ market caps are similar to RGA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PHM | 28 | 826294 | -3 |
| NRG | 46 | 1482443 | 4 |
| EPAM | 24 | 286367 | 1 |
| CVNA | 48 | 2000888 | 3 |
| Average | 36.5 | 1148998 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1149 million. That figure was $477 million in RGA’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 24 bullish hedge fund positions. Reinsurance Group of America Inc (NYSE:RGA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 RGA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RGA investors were disappointed as the stock returned 3.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
