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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hartford Financial Services Group Inc (NYSE:HIG) and determine whether hedge funds had an edge regarding this stock.
Is Hartford Financial Services Group Inc (NYSE:HIG) ready to rally soon? The best stock pickers were in a bullish mood. The number of bullish hedge fund positions inched up by 2 recently. Hartford Financial Services Group Inc (NYSE:HIG) was in 39 hedge funds' portfolios at the end of June. The all time high for this statistics is 51. Our calculations also showed that HIG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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' 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 S&P 500 ETFs by 58 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 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.
Steven Cohen of Point72 Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let's check out the latest hedge fund action encompassing Hartford Financial Services Group Inc (NYSE:HIG).
What does smart money think about Hartford Financial Services Group Inc (NYSE:HIG)?
Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in HIG 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.
More specifically, Diamond Hill Capital was the largest shareholder of Hartford Financial Services Group Inc (NYSE:HIG), with a stake worth $183.6 million reported as of the end of September. Trailing Diamond Hill Capital was D E Shaw, which amassed a stake valued at $179.2 million. Citadel Investment Group, Samlyn Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to Hartford Financial Services Group Inc (NYSE:HIG), around 5.41% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, designating 1.28 percent of its 13F equity portfolio to HIG.
Now, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most outsized position in Hartford Financial Services Group Inc (NYSE:HIG). Point72 Asset Management had $12.6 million invested in the company at the end of the quarter. Joe DiMenna's ZWEIG DIMENNA PARTNERS also initiated a $12.2 million position during the quarter. The following funds were also among the new HIG investors: Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, David Rodriguez-Fraile's BlueMar Capital Management, and Qing Li's Sciencast Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hartford Financial Services Group Inc (NYSE:HIG) but similarly valued. These stocks are Tyler Technologies, Inc. (NYSE:TYL), ONEOK, Inc. (NYSE:OKE), Pembina Pipeline Corp (NYSE:PBA), Fifth Third Bancorp (NASDAQ:FITB), Ventas, Inc. (NYSE:VTR), Zebra Technologies Corporation (NASDAQ:ZBRA), and Teva Pharmaceutical Industries Limited (NYSE:TEVA). All of these stocks' market caps resemble HIG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TYL,36,533929,6 OKE,25,117132,0 PBA,10,89252,-5 FITB,32,354887,2 VTR,21,167092,-4 ZBRA,38,788710,10 TEVA,31,1286113,2 Average,27.6,476731,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $477 million. That figure was $918 million in HIG's case. Zebra Technologies Corporation (NASDAQ:ZBRA) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Hartford Financial Services Group Inc (NYSE:HIG) is more popular among hedge funds. Our overall hedge fund sentiment score for HIG is 79.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately HIG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HIG were disappointed as the stock returned 5.8% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.