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Is Third Point Reinsurance Ltd (TPRE) Going to Burn These Hedge Funds?

Nina Todic

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Third Point Reinsurance Ltd (NYSE:TPRE) based on that data.

Third Point Reinsurance Ltd (NYSE:TPRE) investors should be aware of a decrease in hedge fund interest lately. TPRE was in 19 hedge funds' portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with TPRE positions at the end of the previous quarter. Our calculations also showed that TPRE 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.

5 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' 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.

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a glance at the fresh hedge fund action encompassing Third Point Reinsurance Ltd (NYSE:TPRE).

Hedge fund activity in Third Point Reinsurance Ltd (NYSE:TPRE)

Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in TPRE a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Third Point Reinsurance Ltd (NYSE:TPRE), with a stake worth $15.9 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $11.5 million. GLG Partners, Marshall Wace, and Citadel Investment Group 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 Factorial Partners allocated the biggest weight to Third Point Reinsurance Ltd (NYSE:TPRE), around 1.14% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.22 percent of its 13F equity portfolio to TPRE.

Due to the fact that Third Point Reinsurance Ltd (NYSE:TPRE) has experienced declining sentiment from hedge fund managers, it's easy to see that there were a few fund managers that elected to cut their positions entirely last quarter. It's worth mentioning that Matthew Hulsizer's PEAK6 Capital Management dumped the largest stake of the 750 funds watched by Insider Monkey, comprising about $0.3 million in stock, and Hoon Kim's Quantinno Capital was right behind this move, as the fund said goodbye to about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Third Point Reinsurance Ltd (NYSE:TPRE). These stocks are Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), Sirius International Insurance Group, Ltd. (NASDAQ:SG), and Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). This group of stocks' market values are closest to TPRE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMPH,9,36976,0 SWTX,11,382035,11 SG,3,2416,2 SPPI,7,32036,-2 Average,7.5,113366,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $68 million in TPRE's case. SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Third Point Reinsurance Ltd (NYSE:TPRE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -4.4% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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