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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Safety Insurance Group, Inc. (NASDAQ:SAFT).
Safety Insurance Group, Inc. (NASDAQ:SAFT) has experienced a decrease in support from the world's most elite money managers lately. Our calculations also showed that SAFT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action regarding Safety Insurance Group, Inc. (NASDAQ:SAFT).
What does smart money think about Safety Insurance Group, Inc. (NASDAQ:SAFT)?
At Q3's end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SAFT over the last 17 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Safety Insurance Group, Inc. (NASDAQ:SAFT), with a stake worth $34.1 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $6.8 million. Winton Capital Management, PEAK6 Capital Management, and Navellier & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Safety Insurance Group, Inc. (NASDAQ:SAFT), around 0.17% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to SAFT.
Because Safety Insurance Group, Inc. (NASDAQ:SAFT) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few hedge funds that slashed their full holdings last quarter. Interestingly, John D. Gillespie's Prospector Partners cut the biggest stake of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $3.2 million in call options. Ken Griffin's fund, Citadel Investment Group, also dropped its call options, about $0.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Safety Insurance Group, Inc. (NASDAQ:SAFT). We will take a look at James River Group Holdings Ltd (NASDAQ:JRVR), SunPower Corporation (NASDAQ:SPWR), Badger Meter, Inc. (NYSE:BMI), and Jagged Peak Energy Inc. (NYSE:JAG). This group of stocks' market valuations are closest to SAFT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JRVR,10,52366,0 SPWR,14,105625,4 BMI,17,142140,5 JAG,14,162814,1 Average,13.75,115736,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $47 million in SAFT's case. Badger Meter, Inc. (NYSE:BMI) is the most popular stock in this table. On the other hand James River Group Holdings Ltd (NASDAQ:JRVR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Safety Insurance Group, Inc. (NASDAQ:SAFT) is even less popular than JRVR. Hedge funds dodged a bullet by taking a bearish stance towards SAFT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SAFT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SAFT investors were disappointed as the stock returned -2.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.