We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Third Point Reinsurance Ltd (NYSE:TPRE).
Third Point Reinsurance Ltd (NYSE:TPRE) has seen an increase in hedge fund sentiment recently. Our calculations also showed that TPRE isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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.
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 take a gander at the recent hedge fund action encompassing Third Point Reinsurance Ltd (NYSE:TPRE).
Hedge fund activity in Third Point Reinsurance Ltd (NYSE:TPRE)
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TPRE over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Third Point Reinsurance Ltd (NYSE:TPRE) was held by GLG Partners, which reported holding $16.5 million worth of stock at the end of March. It was followed by D E Shaw with a $14.4 million position. Other investors bullish on the company included Renaissance Technologies, AQR Capital Management, and Citadel Investment Group.
Now, key money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the largest position in Third Point Reinsurance Ltd (NYSE:TPRE). Marshall Wace LLP had $1 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Thomas Bailard's Bailard Inc, Minhua Zhang's Weld Capital Management, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks similar to Third Point Reinsurance Ltd (NYSE:TPRE). These stocks are Columbus McKinnon Corporation (NASDAQ:CMCO), Eldorado Gold Corp (NYSE:EGO), Sonic Automotive Inc (NYSE:SAH), and Upland Software Inc (NASDAQ:UPLD). This group of stocks' market valuations are closest to TPRE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMCO,20,77161,-1 EGO,10,61879,-1 SAH,11,26993,0 UPLD,24,202112,-4 Average,16.25,92036,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $65 million in TPRE's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Eldorado Gold Corp (NYSE:EGO) is the least popular one with only 10 bullish hedge fund positions. Third Point Reinsurance Ltd (NYSE:TPRE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TPRE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TPRE were disappointed as the stock returned -3.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.