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Should You Buy White Mountains Insurance Group Ltd (WTM)?

Nina Todic

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of White Mountains Insurance Group Ltd (NYSE:WTM).

White Mountains Insurance Group Ltd (NYSE:WTM) investors should be aware of an increase in support from the world's most elite money managers in recent months. Our calculations also showed that WTM isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the key hedge fund action encompassing White Mountains Insurance Group Ltd (NYSE:WTM).

What have hedge funds been doing with White Mountains Insurance Group Ltd (NYSE:WTM)?

Heading into the third quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in WTM 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.

No of Hedge Funds with WTM Positions

When looking at the institutional investors followed by Insider Monkey, Scott Wallace's Wallace Capital Management has the largest position in White Mountains Insurance Group Ltd (NYSE:WTM), worth close to $81.9 million, corresponding to 10.8% of its total 13F portfolio. Sitting at the No. 2 spot is Elkhorn Partners, managed by Alan S. Parsow, which holds a $26.4 million position; the fund has 15.7% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Ian Simm's Impax Asset Management, Robert Joseph Caruso's Select Equity Group and Noam Gottesman's GLG Partners.

Now, key money managers have jumped into White Mountains Insurance Group Ltd (NYSE:WTM) headfirst. Select Equity Group, managed by Robert Joseph Caruso, established the most valuable position in White Mountains Insurance Group Ltd (NYSE:WTM). Select Equity Group had $15.1 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are George Zweig, Shane Haas and Ravi Chander's Signition LP and Claes Fornell's CSat Investment Advisory.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as White Mountains Insurance Group Ltd (NYSE:WTM) but similarly valued. These stocks are Coherent, Inc. (NASDAQ:COHR), Navient Corporation (NASDAQ:NAVI), Gates Industrial Corporation plc (NYSE:GTES), and Allogene Therapeutics, Inc. (NASDAQ:ALLO). This group of stocks' market values are closest to WTM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COHR,19,188599,5 NAVI,26,490383,-5 GTES,13,16531,4 ALLO,8,106337,0 Average,16.5,200463,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $180 million in WTM's case. Navient Corporation (NASDAQ:NAVI) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 8 bullish hedge fund positions. White Mountains Insurance Group Ltd (NYSE:WTM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on WTM, though not to the same extent, as the stock returned 5.7% during the third quarter and outperformed the market as well.

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

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