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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Brown & Brown, Inc. (NYSE:BRO), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is BRO stock a buy? Brown & Brown, Inc. (NYSE:BRO) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds' portfolios at the end of the fourth quarter of 2020. Our calculations also showed that BRO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare BRO to other stocks including ON Semiconductor Corporation (NASDAQ:ON), Sarepta Therapeutics Inc (NASDAQ:SRPT), and Cable One Inc (NYSE:CABO) 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 124 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind let's go over the recent hedge fund action surrounding Brown & Brown, Inc. (NYSE:BRO).
Do Hedge Funds Think BRO Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in BRO 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in Brown & Brown, Inc. (NYSE:BRO). Select Equity Group has a $658.5 million position in the stock, comprising 2.7% of its 13F portfolio. On Select Equity Group's heels is Ken Griffin of Citadel Investment Group, with a $45.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Dmitry Balyasny's Balyasny Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Ric Dillon's Diamond Hill Capital. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Brown & Brown, Inc. (NYSE:BRO), around 3.13% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 2.7 percent of its 13F equity portfolio to BRO.
Due to the fact that Brown & Brown, Inc. (NYSE:BRO) has witnessed bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers that decided to sell off their positions entirely in the fourth quarter. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors cut the biggest investment of the "upper crust" of funds followed by Insider Monkey, valued at close to $0.8 million in stock. Karim Abbadi and Edward McBride's fund, Centiva Capital, also said goodbye to its stock, about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Brown & Brown, Inc. (NYSE:BRO) but similarly valued. These stocks are ON Semiconductor Corporation (NASDAQ:ON), Sarepta Therapeutics Inc (NASDAQ:SRPT), Cable One Inc (NYSE:CABO), Penn National Gaming, Inc (NASDAQ:PENN), Omnicom Group Inc. (NYSE:OMC), Ally Financial Inc (NYSE:ALLY), and C3.ai, Inc. (NYSE:AI). This group of stocks' market valuations are closest to BRO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ON,45,1377409,16 SRPT,37,978493,2 CABO,17,827605,-6 PENN,41,1324598,-4 OMC,34,546941,0 ALLY,57,2593837,4 AI,37,483532,37 Average,38.3,1161774,7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $1162 million. That figure was $931 million in BRO's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 17 bullish hedge fund positions. Brown & Brown, Inc. (NYSE:BRO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BRO is 48.1. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately BRO wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); BRO investors were disappointed as the stock returned 1.2% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.