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These Hedge Funds Sold Out Of Hartford Financial Services Group, Inc. (HIG) Too Early

Nina Todic

We can judge whether The Hartford Financial Services Group, Inc. (NYSE:HIG) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

The Hartford Financial Services Group, Inc. (NYSE:HIG) has experienced a decrease in hedge fund interest recently. HIG was in 30 hedge funds' portfolios at the end of the second quarter of 2019. There were 37 hedge funds in our database with HIG positions at the end of the previous quarter. Our calculations also showed that HIG isn't among the 30 most popular stocks among hedge funds. However, these aren't necessarily bearish signals. We need to compare HIG to its peers to determine what hedge funds really think about the stock.

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.

Dmitry Balyasny

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's take a gander at the fresh hedge fund action surrounding The Hartford Financial Services Group, Inc. (NYSE:HIG).

Hedge fund activity in The Hartford Financial Services Group, Inc. (NYSE:HIG)

At Q2's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in HIG a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with HIG Positions

More specifically, Diamond Hill Capital was the largest shareholder of The Hartford Financial Services Group, Inc. (NYSE:HIG), with a stake worth $240.8 million reported as of the end of March. Trailing Diamond Hill Capital was Citadel Investment Group, which amassed a stake valued at $222.1 million. D E Shaw, Two Sigma Advisors, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because The Hartford Financial Services Group, Inc. (NYSE:HIG) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds that elected to cut their positions entirely last quarter. At the top of the heap, Israel Englander's Millennium Management cut the biggest stake of the 750 funds followed by Insider Monkey, comprising close to $50.9 million in stock. David Harding's fund, Winton Capital Management, also sold off its stock, about $22.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 7 funds last quarter.

Let's go over hedge fund activity in other stocks similar to The Hartford Financial Services Group, Inc. (NYSE:HIG). These stocks are Arista Networks Inc (NYSE:ANET), Fifth Third Bancorp (NASDAQ:FITB), Boston Properties, Inc. (NYSE:BXP), and Hewlett Packard Enterprise Company (NYSE:HPE). This group of stocks' market valuations match HIG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANET,28,411623,0 FITB,29,814784,-9 BXP,23,419884,-4 HPE,28,836943,-2 Average,27,620809,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $621 million. That figure was $1126 million in HIG's case. Fifth Third Bancorp (NASDAQ:FITB) is the most popular stock in this table. On the other hand Boston Properties, Inc. (NYSE:BXP) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks The Hartford Financial Services Group, Inc. (NYSE:HIG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on HIG as the stock returned 9.3% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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