Is RLI Corp. (RLI) A Good Stock To Buy?

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at RLI Corp. (NYSE:RLI) from the perspective of those successful funds.

RLI Corp. (NYSE:RLI) was in 9 hedge funds’ portfolios at the end of September. RLI investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 11 hedge funds in our database with RLI positions at the end of June. At the end of this article we will also compare RLI to other stocks including Tech Data Corp (NASDAQ:TECD), Spirit Airlines Incorporated (NASDAQ:SAVE), and Owens-Illinois Inc (NYSE:OI) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How are hedge funds trading RLI Corp. (NYSE:RLI)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a fall of 18% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in RLI at the beginning of this year, so hedge fund sentiment is still slightly positive for the year. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Markel Gayner Asset Management, led by Tom Gayner, holds the biggest position in RLI Corp. (NYSE:RLI). Markel Gayner Asset Management has an $81.8 million position in the stock, comprising 2.1% of its 13F portfolio. On Markel Gayner Asset Management’s heels is Royce & Associates, led by Chuck Royce, holding a $22.9 million position. Other hedge funds and institutional investors that are bullish consist of Brian Ashford-Russell and Tim Woolley’s Polar Capital, Cliff Asness’ AQR Capital Management, and D E Shaw, one of the largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. At the top of the heap, Israel Englander’s Millennium Management dumped the largest position of all the investors tracked by Insider Monkey, valued at about $1 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to RLI Corp. (NYSE:RLI). We will take a look at Tech Data Corp (NASDAQ:TECD), Spirit Airlines Incorporated (NASDAQ:SAVE), Owens-Illinois Inc (NYSE:OI), and John Wiley & Sons Inc (NYSE:JW). All of these stocks’ market caps match RLI’s market cap.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $121 million in RLI’s case. Spirit Airlines Incorporated (NASDAQ:SAVE) is the most popular stock in this table. On the other hand John Wiley & Sons Inc (NYSE:JW) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks RLI Corp. (NYSE:RLI) is even less popular than JW. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None