How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Validus Holdings, Ltd. (NYSE:VR).
Is Validus Holdings, Ltd. (NYSE:VR) a splendid investment right now? Investors who are in the know are becoming more confident. The number of long hedge fund positions moved up by two in recent months. VR was in 19 hedge funds’ portfolios at the end of the third quarter of 2015. There were 17 hedge funds in our database with VR positions at the end of the previous quarter. 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 Guidewire Software Inc (NYSE:GWRE), Colfax Corp (NYSE:CFX), and CPFL Energia S.A. (ADR) (NYSE:CPL) to gather more data points.
Follow Validus Holdings Ltd (NYSE:VR)
Follow Validus Holdings Ltd (NYSE:VR)
To the average investor, there are dozens of signals shareholders employ to evaluate their stock investments. A couple of the most useful signals are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can outclass their index-focused peers by a superb margin (see the details here).
Keeping this in mind, let’s take a look at the recent action regarding Validus Holdings, Ltd. (NYSE:VR).
What does the smart money think about Validus Holdings, Ltd. (NYSE:VR)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, holds the largest position in Validus Holdings, Ltd. (NYSE:VR). Polar Capital has a $45.1 million position in the stock, comprising 0.9% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $38.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Richard S. Pzena’s Pzena Investment Management, Israel Englander’s Millennium Management and Lee Munder’s Lee Munder Capital Group.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Validus Holdings, Ltd. (NYSE:VR). Point72 Asset Management had $15.8 million invested in the company at the end of the quarter. Millennium Management Subsidiary’s Blue Arrow Capital Management also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Jacob Gottlieb’s Visium Asset Management, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s also examine hedge fund activity in other stocks similar to Validus Holdings, Ltd. (NYSE:VR). These stocks are Guidewire Software Inc (NYSE:GWRE), Colfax Corp (NYSE:CFX), CPFL Energia S.A. (ADR) (NYSE:CPL), and EPAM Systems Inc (NYSE:EPAM). This group of stocks’ market valuations match VR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GWRE | 14 | 107578 | 1 |
| CFX | 27 | 758501 | 3 |
| CPL | 6 | 3910 | 2 |
| EPAM | 18 | 301159 | -1 |
As you can see, these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. On the other hand, hedge funds held stakes with an aggregate value of $221 million in VR. Colfax Corp (NYSE:CFX) is the most popular stock in this table with 27 long positions, while CPFL Energia S.A. (ADR) (NYSE:CPL) is the least popular one. Validus Holdings, Ltd. (NYSE:VR) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CFX might be a better candidate to consider a long position.
