Is Safety Insurance Group, Inc. (SAFT) Going to Burn These Hedge Funds?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Safety Insurance Group, Inc. (NASDAQ:SAFT) .

Hedge fund interest in Safety Insurance Group, Inc. (NASDAQ:SAFT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ixia (NASDAQ:XXIA), The Ensign Group, Inc. (NASDAQ:ENSG), and Hercules Technology Growth Capital Inc (NYSE:HTGC) to gather more data points.

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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Now, let’s take a peek at the fresh action regarding Safety Insurance Group, Inc. (NASDAQ:SAFT).

What does the smart money think about Safety Insurance Group, Inc. (NASDAQ:SAFT)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in SAFT heading into this year. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Capital Returns Management, led by Ron Bobman, holds the largest position in Safety Insurance Group, Inc. (NASDAQ:SAFT). Capital Returns Management has a $12 million position in the stock, comprising 5.7% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, one of the biggest hedge funds in the world, which holds a $11.3 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Other peers that are bullish include John D. Gillespie’s Prospector Partners, Cliff Asness’ AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. 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-microcap stocks.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Balyasny Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Tudor Investment Corp).

Let’s also examine hedge fund activity in other stocks similar to Safety Insurance Group, Inc. (NASDAQ:SAFT). These stocks are Ixia (NASDAQ:XXIA), The Ensign Group, Inc. (NASDAQ:ENSG), Hercules Technology Growth Capital Inc (NYSE:HTGC), and Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI). All of these stocks’ market caps match SAFT’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $32 million in SAFT’s case. Ixia (NASDAQ:XXIA) is the most popular stock in this table. On the other hand Hannon Armstrong Sustnbl Infrstr Cap Inc (NYSE:HASI) is the least popular one with only 5 bullish hedge fund positions. Safety Insurance Group, Inc. (NASDAQ:SAFT) is not the least popular stock in this group but hedge fund interest is just average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard XXIA might be a better candidate to consider taking a long position in.