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Chubb Limited (CB) vs. Hedge Fund Favorites in 2019

Debasis Saha

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Chubb Limited (NYSE:CB) and see how the stock performed in comparison to hedge funds' consensus picks.

Is Chubb Limited (NYSE:CB) worth your attention right now? Investors who are in the know are turning bullish. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that CB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="alignnone" width="600"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT
AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to take a peek at the latest hedge fund action surrounding Chubb Limited (NYSE:CB).

Hedge fund activity in Chubb Limited (NYSE:CB)

At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in CB a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CB A Good Stock To Buy?
Is CB A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, holds the most valuable position in Chubb Limited (NYSE:CB). Polar Capital has a $196.7 million position in the stock, comprising 1.8% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $98 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Phill Gross and Robert Atchinson's Adage Capital Management, Israel Englander's Millennium Management and Bernard Horn's Polaris Capital Management. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to Chubb Limited (NYSE:CB), around 2.24% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, designating 1.77 percent of its 13F equity portfolio to CB.

As industrywide interest jumped, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Chubb Limited (NYSE:CB). Balyasny Asset Management had $31.5 million invested in the company at the end of the quarter. Joe DiMenna's ZWEIG DIMENNA PARTNERS also initiated a $8.4 million position during the quarter. The other funds with new positions in the stock are Sander Gerber's Hudson Bay Capital Management, Paul Tudor Jones's Tudor Investment Corp, and Jeffrey Talpins's Element Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Chubb Limited (NYSE:CB) but similarly valued. We will take a look at Sony Corporation (NYSE:SNE), Ambev SA (NYSE:ABEV), The Estee Lauder Companies Inc (NYSE:EL), and China Petroleum & Chemical Corp (NYSE:SNP). This group of stocks' market caps are similar to CB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNE,26,783005,-9 ABEV,18,384746,2 EL,43,1850698,7 SNP,13,178003,2 Average,25,799113,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $799 million. That figure was $613 million in CB's case. The Estee Lauder Companies Inc (NYSE:EL) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. Chubb Limited (NYSE:CB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CB were disappointed as the stock returned 22.9% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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