We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like The Travelers Companies, Inc. (NYSE:TRV).
Is The Travelers Companies, Inc. (NYSE:TRV) a cheap investment right now? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets went up by 8 lately. Our calculations also showed that TRV 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.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the key hedge fund action regarding The Travelers Companies, Inc. (NYSE:TRV).
How have hedgies been trading The Travelers Companies, Inc. (NYSE:TRV)?
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TRV over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of The Travelers Companies, Inc. (NYSE:TRV), with a stake worth $886 million reported as of the end of September. Trailing Berkshire Hathaway was AQR Capital Management, which amassed a stake valued at $299.2 million. Polar Capital, Winton Capital Management, and Markel Gayner Asset Management 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 Prana Capital Management allocated the biggest weight to The Travelers Companies, Inc. (NYSE:TRV), around 1.34% of its portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, setting aside 0.71 percent of its 13F equity portfolio to TRV.
As aggregate interest increased, key hedge funds have been driving this bullishness. Prana Capital Management, managed by Peter Seuss, initiated the largest position in The Travelers Companies, Inc. (NYSE:TRV). Prana Capital Management had $7.4 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $6 million investment in the stock during the quarter. The following funds were also among the new TRV investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Matthew Tewksbury's Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Travelers Companies, Inc. (NYSE:TRV) but similarly valued. These stocks are Ferrari N.V. (NYSE:RACE), Keurig Dr Pepper Inc. (NYSE:KDP), FedEx Corporation (NYSE:FDX), and National Grid plc (NYSE:NGG). This group of stocks' market values match TRV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RACE,32,1530799,2 KDP,20,669516,-1 FDX,40,1369398,0 NGG,10,534812,2 Average,25.5,1026131,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1026 million. That figure was $1514 million in TRV's case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 10 bullish hedge fund positions. The Travelers Companies, Inc. (NYSE:TRV) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 TRV wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TRV were disappointed as the stock returned -8.1% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.