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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March 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 The Travelers Companies Inc (NYSE:TRV).
Is TRV stock a buy? The Travelers Companies Inc (NYSE:TRV) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. The Travelers Companies Inc (NYSE:TRV) was in 34 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 39. There were 35 hedge funds in our database with TRV positions at the end of the third quarter. Our calculations also showed that TRV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's check out the new hedge fund action regarding The Travelers Companies Inc (NYSE:TRV).
Do Hedge Funds Think TRV Is A Good Stock To Buy Now?
At Q4's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TRV over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of The Travelers Companies Inc (NYSE:TRV), with a stake worth $136.3 million reported as of the end of December. Trailing AQR Capital Management was Polar Capital, which amassed a stake valued at $103.1 million. Adage Capital Management, Balyasny Asset Management, and Alyeska 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 Te Ahumairangi Investment Management allocated the biggest weight to The Travelers Companies Inc (NYSE:TRV), around 0.91% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 0.62 percent of its 13F equity portfolio to TRV.
Seeing as The Travelers Companies Inc (NYSE:TRV) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers who were dropping their positions entirely by the end of the fourth quarter. Interestingly, Rob Citrone's Discovery Capital Management cut the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth an estimated $16.6 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dropped about $2.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the fourth quarter.
Let's check out hedge fund activity in other stocks similar to The Travelers Companies Inc (NYSE:TRV). We will take a look at DexCom, Inc. (NASDAQ:DXCM), Aptiv PLC (NYSE:APTV), Parker-Hannifin Corporation (NYSE:PH), Ford Motor Company (NYSE:F), Trane Technologies plc (NYSE:TT), Centene Corporation (NYSE:CNC), and Xilinx, Inc. (NASDAQ:XLNX). All of these stocks' market caps are closest to TRV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DXCM,52,1664615,-6 APTV,44,1354021,6 PH,56,1601655,5 F,41,1652221,3 TT,34,998785,-3 CNC,56,2646289,-2 XLNX,66,3837083,20 Average,49.9,1964953,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.9 hedge funds with bullish positions and the average amount invested in these stocks was $1965 million. That figure was $406 million in TRV's case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Trane Technologies plc (NYSE:TT) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks The Travelers Companies Inc (NYSE:TRV) is even less popular than TT. Our overall hedge fund sentiment score for TRV is 30.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards TRV. Our calculations showed that the top 20 most popular hedge fund stocks returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st but managed to beat the market again by 0.4 percentage points. Unfortunately TRV wasn't nearly as popular as these 30 stocks (hedge fund sentiment was very bearish); TRV investors were disappointed as the stock returned 7.3% since the end of the fourth quarter (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.