"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Reinsurance Group of America Inc (NYSE:RGA) investors should be aware of an increase in support from the world's most elite money managers of late. RGA was in 21 hedge funds' portfolios at the end of September. There were 20 hedge funds in our database with RGA holdings at the end of the previous quarter. Our calculations also showed that RGA isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to go over the new hedge fund action surrounding Reinsurance Group of America Inc (NYSE:RGA).
How are hedge funds trading Reinsurance Group of America Inc (NYSE:RGA)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RGA over the last 13 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Reinsurance Group of America Inc (NYSE:RGA), which was worth $276.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $114.8 million worth of shares. Moreover, Balyasny Asset Management, Diamond Hill Capital, and Polar Capital were also bullish on Reinsurance Group of America Inc (NYSE:RGA), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key money managers have jumped into Reinsurance Group of America Inc (NYSE:RGA) headfirst. Interval Partners, managed by Gregg Moskowitz, established the largest position in Reinsurance Group of America Inc (NYSE:RGA). Interval Partners had $12 million invested in the company at the end of the quarter. Daniel Johnson's Gillson Capital also initiated a $5 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Brandon Haley's Holocene Advisors.
Let's also examine hedge fund activity in other stocks similar to Reinsurance Group of America Inc (NYSE:RGA). These stocks are Molina Healthcare, Inc. (NYSE:MOH), Paycom Software Inc (NYSE:PAYC), A. O. Smith Corporation (NYSE:AOS), and West Pharmaceutical Services Inc. (NYSE:WST). This group of stocks' market valuations are similar to RGA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOH,30,1522847,1 PAYC,23,213612,2 AOS,33,738739,12 WST,17,252641,4 Average,25.75,681960,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $682 million. That figure was $674 million in RGA's case. A. O. Smith Corporation (NYSE:AOS) is the most popular stock in this table. On the other hand West Pharmaceutical Services Inc. (NYSE:WST) is the least popular one with only 17 bullish hedge fund positions. Reinsurance Group of America Inc (NYSE:RGA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard AOS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.