Were Hedge Funds Right About Kinsale Capital Group, Inc. (KNSL)?

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 Kinsale Capital Group, Inc. (NASDAQ:KNSL).

Kinsale Capital Group, Inc. (NASDAQ:KNSL) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of March. Our calculations also showed that KNSL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare KNSL to other stocks including Olo Inc. (NYSE:OLO), Safehold Inc. (NYSE:SAFE), and Physicians Realty Trust (NYSE:DOC) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we’re going to take a gander at the key hedge fund action regarding Kinsale Capital Group, Inc. (NASDAQ:KNSL).

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

Heading into the second quarter of 2021, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in KNSL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Kinsale Capital Group, Inc. (NASDAQ:KNSL), worth close to $12.8 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $11.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Israel Englander’s Millennium Management, and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Kinsale Capital Group, Inc. (NASDAQ:KNSL), around 0.09% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to KNSL.

Since Kinsale Capital Group, Inc. (NASDAQ:KNSL) has faced declining sentiment from hedge fund managers, logic holds that there were a few fund managers that decided to sell off their entire stakes in the first quarter. Interestingly, Richard Driehaus’s Driehaus Capital said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, worth about $21.7 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $4.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Kinsale Capital Group, Inc. (NASDAQ:KNSL) but similarly valued. We will take a look at Olo Inc. (NYSE:OLO), Safehold Inc. (NYSE:SAFE), Physicians Realty Trust (NYSE:DOC), Companhia Energética de Minas Gerais (NYSE:CIG), Commercial Metals Company (NYSE:CMC), Hancock Whitney Corporation (NASDAQ:HWC), and MultiPlan Corporation (NYSE:MPLN). This group of stocks’ market values resemble KNSL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $50 million in KNSL’s case. MultiPlan Corporation (NYSE:MPLN) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 8 bullish hedge fund positions. Kinsale Capital Group, Inc. (NASDAQ:KNSL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KNSL is 55.5. 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. 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 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately KNSL wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); KNSL investors were disappointed as the stock returned 3.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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