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Hedge Funds Are Getting Back Into Brown & Brown, Inc. (BRO)

Debasis Saha

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Brown & Brown, Inc. (NYSE:BRO) based on that data.

Brown & Brown, Inc. (NYSE:BRO) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that BRO isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_758429" align="aligncenter" width="400"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to analyze the latest hedge fund action regarding Brown & Brown, Inc. (NYSE:BRO).

What does smart money think about Brown & Brown, Inc. (NYSE:BRO)?

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in BRO a year ago. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is BRO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in Brown & Brown, Inc. (NYSE:BRO). Select Equity Group has a $432.2 million position in the stock, comprising 3% of its 13F portfolio. On Select Equity Group's heels is Renaissance Technologies, which holds a $55.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of John D. Gillespie's Prospector Partners, Ric Dillon's Diamond Hill Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Brown & Brown, Inc. (NYSE:BRO), around 4.65% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, designating 2.98 percent of its 13F equity portfolio to BRO.

As aggregate interest increased, specific money managers have jumped into Brown & Brown, Inc. (NYSE:BRO) headfirst. Brant Point Investment Management, managed by Ira Unschuld, established the most outsized position in Brown & Brown, Inc. (NYSE:BRO). Brant Point Investment Management had $6 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $4.1 million position during the quarter. The other funds with new positions in the stock are Louis Navellier's Navellier & Associates, Matthew Hulsizer's PEAK6 Capital Management, and Gregg Moskowitz's Interval Partners.

Let's go over hedge fund activity in other stocks similar to Brown & Brown, Inc. (NYSE:BRO). We will take a look at EPAM Systems Inc (NYSE:EPAM), Hess Corporation (NYSE:HES), Discovery Inc. (NASDAQ:DISCA), and GSX Techedu Inc. (NYSE:GSX). This group of stocks' market values resemble BRO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPAM,27,338859,-1 HES,28,253381,-6 DISCA,32,233387,-6 GSX,13,204210,3 Average,25,257459,-2.5 [/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 $257 million. That figure was $586 million in BRO's case. Discovery Inc. (NASDAQ:DISCA) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. Brown & Brown, Inc. (NYSE:BRO) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately BRO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BRO were disappointed as the stock returned 11.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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

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