Verisk Analytics, Inc. (VRSK): Were Hedge Funds Right About This Stock?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Verisk Analytics, Inc. (NASDAQ:VRSK).

Is Verisk Analytics, Inc. (NASDAQ:VRSK) a bargain? The smart money was betting on the stock. The number of bullish hedge fund positions increased by 2 in recent months. Verisk Analytics, Inc. (NASDAQ:VRSK) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistic is 40. Our calculations also showed that VRSK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Charles Akre of Akre Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a gander at the key hedge fund action encompassing Verisk Analytics, Inc. (NASDAQ:VRSK).

Do Hedge Funds Think VRSK Is A Good Stock To Buy Now?

At second quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the first quarter of 2020. On the other hand, there were a total of 36 hedge funds with a bullish position in VRSK a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Verisk Analytics, Inc. (NASDAQ:VRSK) was held by Impax Asset Management, which reported holding $441 million worth of stock at the end of June. It was followed by Akre Capital Management with a $427.5 million position. Other investors bullish on the company included GuardCap Asset Management, Fundsmith LLP, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Akre Capital Management allocated the biggest weight to Verisk Analytics, Inc. (NASDAQ:VRSK), around 2.63% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, dishing out 2.4 percent of its 13F equity portfolio to VRSK.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Greenhouse Funds, managed by Joe Milano, initiated the largest call position in Verisk Analytics, Inc. (NASDAQ:VRSK). Greenhouse Funds had $21.2 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $19.2 million position during the quarter. The other funds with brand new VRSK positions are Peter Seuss’s Prana Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Mikal Patel’s Oribel Capital Management.

Let’s go over hedge fund activity in other stocks similar to Verisk Analytics, Inc. (NASDAQ:VRSK). These stocks are Maxim Integrated Products Inc. (NASDAQ:MXIM), Synchrony Financial (NYSE:SYF), WEC Energy Group, Inc. (NYSE:WEC), American Water Works Company, Inc. (NYSE:AWK), Magna International Inc. (NYSE:MGA), Yum China Holdings, Inc. (NYSE:YUMC), and Lufax Holding Ltd (NYSE:LU). This group of stocks’ market values are similar to VRSK’s market value.

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As you can see these stocks had an average of 34.6 hedge funds with bullish positions and the average amount invested in these stocks was $1311 million. That figure was $1738 million in VRSK’s case. Maxim Integrated Products Inc. (NASDAQ:MXIM) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 19 bullish hedge fund positions. Verisk Analytics, Inc. (NASDAQ:VRSK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRSK is 57. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on VRSK as the stock returned 23% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.