We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about RenaissanceRe Holdings Ltd. (NYSE:RNR).
RenaissanceRe Holdings Ltd. (NYSE:RNR) has experienced an increase in support from the world's most elite money managers lately. RNR was in 23 hedge funds' portfolios at the end of December. There were 18 hedge funds in our database with RNR holdings at the end of the previous quarter. Our calculations also showed that RNR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="400"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to analyze the new hedge fund action encompassing RenaissanceRe Holdings Ltd. (NYSE:RNR).
What does smart money think about RenaissanceRe Holdings Ltd. (NYSE:RNR)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the third quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in RNR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the biggest position in RenaissanceRe Holdings Ltd. (NYSE:RNR), worth close to $182.2 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $157.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include Brian Ashford-Russell and Tim Woolley's Polar Capital, Ken Griffin's Citadel Investment Group and Ric Dillon's Diamond Hill Capital. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to RenaissanceRe Holdings Ltd. (NYSE:RNR), around 8.95% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 4.2 percent of its 13F equity portfolio to RNR.
As industrywide interest jumped, key hedge funds have jumped into RenaissanceRe Holdings Ltd. (NYSE:RNR) headfirst. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, initiated the most outsized position in RenaissanceRe Holdings Ltd. (NYSE:RNR). ZWEIG DIMENNA PARTNERS had $10.9 million invested in the company at the end of the quarter. Qing Li's Sciencast Management also initiated a $1.9 million position during the quarter. The other funds with brand new RNR positions are Donald Sussman's Paloma Partners, Mike Vranos's Ellington, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks similar to RenaissanceRe Holdings Ltd. (NYSE:RNR). These stocks are Cypress Semiconductor Corporation (NASDAQ:CY), PTC Inc (NASDAQ:PTC), Zendesk Inc (NYSE:ZEN), and Sensata Technologies Holding plc (NYSE:ST). This group of stocks' market values resemble RNR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CY,36,1441339,1 PTC,35,1101313,5 ZEN,61,1843205,14 ST,23,1309456,0 Average,38.75,1423828,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1424 million. That figure was $765 million in RNR's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Sensata Technologies Holding plc (NYSE:ST) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks RenaissanceRe Holdings Ltd. (NYSE:RNR) is even less popular than ST. Hedge funds dodged a bullet by taking a bearish stance towards RNR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately RNR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RNR investors were disappointed as the stock returned -30.1% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.