Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is XL Group plc (NYSE:XL) the right pick for your portfolio? Hedge funds are becoming more confident. The number of long hedge fund bets rose by 8 lately. XL was in 37 hedge funds’ portfolios at the end of September. There were 29 hedge funds in our database with XL holdings at the end of the previous quarter. At the end of this article we will also compare XL to other stocks including Xilinx, Inc. (NASDAQ:XLNX), KeyCorp (NYSE:KEY), and Laboratory Corp. of America Holdings (NYSE:LH) to get a better sense of its popularity.
Follow Xl Group Ltd (NYSE:XL)
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Now, let’s go over the recent action surrounding XL Group plc (NYSE:XL).
How are hedge funds trading XL Group plc (NYSE:XL)?
At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the second quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in XL Group plc (NYSE:XL). Pzena Investment Management has a $220 million position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is Steven Richman of East Side Capital (RR Partners), with a $152.1 million position; 6.5% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism consist of Robert Pohly’s Samlyn Capital, Ken Griffin’s Citadel Investment Group and Cliff Asness’s AQR Capital Management.
As aggregate interest increased, key hedge funds were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, initiated the most valuable position in XL Group plc (NYSE:XL). Renaissance Technologies had $13.3 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt also initiated a $6.3 million position during the quarter. The following funds were also among the new XL investors: George Hall’s Clinton Group, Ken Gray and Steve Walsh’s Bryn Mawr Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as XL Group plc (NYSE:XL) but similarly valued. These stocks are Xilinx, Inc. (NASDAQ:XLNX), KeyCorp (NYSE:KEY), Laboratory Corp. of America Holdings (NYSE:LH), and Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY). This group of stocks’ market valuations are closest to XL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XLNX | 23 | 1200643 | -2 |
| KEY | 35 | 655968 | -2 |
| LH | 43 | 2336507 | -9 |
| RDY | 14 | 537925 | 1 |
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1,183 million. That figure was $914 million in XL’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY) is the least popular one with only 14 bullish hedge fund positions. XL Group plc (NYSE:XL) is not the most popular stock in this group but hedge fund interest is still above average. This is a positive signal that makes XL worth a closer look.
