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 Peltz's recent General Electric losses). However, it is still 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 The Hanover Insurance Group, Inc. (NYSE:THG).
The Hanover Insurance Group, Inc. (NYSE:THG) has seen an increase in activity from the world's largest hedge funds recently. THG was in 18 hedge funds' portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with THG positions at the end of the previous quarter. Our calculations also showed that thg isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a gander at the recent hedge fund action encompassing The Hanover Insurance Group, Inc. (NYSE:THG).
Hedge fund activity in The Hanover Insurance Group, Inc. (NYSE:THG)
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in THG over the last 13 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of The Hanover Insurance Group, Inc. (NYSE:THG), with a stake worth $74.1 million reported as of the end of September. Trailing AQR Capital Management was Pzena Investment Management, which amassed a stake valued at $69.9 million. Renaissance Technologies, Citadel Investment Group, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in The Hanover Insurance Group, Inc. (NYSE:THG). Marshall Wace LLP had $29.8 million invested in the company at the end of the quarter. Ian Simm's Impax Asset Management also made a $17.2 million investment in the stock during the quarter. The following funds were also among the new THG investors: Daniel Johnson's Gillson Capital, Dmitry Balyasny's Balyasny Asset Management, and David Costen Haley's HBK Investments.
Let's also examine hedge fund activity in other stocks similar to The Hanover Insurance Group, Inc. (NYSE:THG). These stocks are Ashland Global Holdings Inc.. (NYSE:ASH), Cypress Semiconductor Corporation (NASDAQ:CY), Popular Inc (NASDAQ:BPOP), and Bruker Corporation (NASDAQ:BRKR). This group of stocks' market caps match THG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASH,32,1200550,2 CY,24,162263,1 BPOP,28,786223,1 BRKR,24,250368,-2 Average,27,599851,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $380 million in THG's case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Cypress Semiconductor Corporation (NASDAQ:CY) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks The Hanover Insurance Group, Inc. (NYSE:THG) is even less popular than CY. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.