Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to RenaissanceRe Holdings Ltd. (NYSE:RNR) changed recently.
Hedge fund interest in RenaissanceRe Holdings Ltd. (NYSE:RNR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Nordson Corporation (NASDAQ:NDSN), Omega Healthcare Investors Inc (NYSE:OHI), and Brookfield Property Partners LP (NASDAQ:BPY) to gather more data points. Our calculations also showed that RNR isn't among the 30 most popular stocks among hedge funds (view 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 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 check out the latest hedge fund action surrounding RenaissanceRe Holdings Ltd. (NYSE:RNR).
How have hedgies been trading RenaissanceRe Holdings Ltd. (NYSE:RNR)?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in RNR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in RenaissanceRe Holdings Ltd. (NYSE:RNR), which was worth $186.9 million at the end of the second quarter. On the second spot was Abrams Bison Investments which amassed $111.4 million worth of shares. Moreover, AQR Capital Management, Polar Capital, and Diamond Hill Capital were also bullish on RenaissanceRe Holdings Ltd. (NYSE:RNR), allocating a large percentage of their portfolios to this stock.
Since RenaissanceRe Holdings Ltd. (NYSE:RNR) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few fund managers who were dropping their full holdings last quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management sold off the biggest stake of the 750 funds followed by Insider Monkey, valued at close to $4 million in stock. Ian Simm's fund, Impax Asset Management, also dropped its stock, about $2.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to RenaissanceRe Holdings Ltd. (NYSE:RNR). We will take a look at Nordson Corporation (NASDAQ:NDSN), Omega Healthcare Investors Inc (NYSE:OHI), Brookfield Property Partners LP (NASDAQ:BPY), and Carlyle Group LP (NASDAQ:CG). This group of stocks' market values match RNR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NDSN,17,47469,4 OHI,17,284232,4 BPY,6,53961,-2 CG,7,163854,0 Average,11.75,137379,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $721 million in RNR's case. Nordson Corporation (NASDAQ:NDSN) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks RenaissanceRe Holdings Ltd. (NYSE:RNR) is more popular among hedge funds. 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. Hedge funds were also right about betting on RNR as the stock returned 8.9% 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.
Disclosure: None. This article was originally published at Insider Monkey.