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 Verisk Analytics, Inc. (NASDAQ:VRSK).
Hedge fund interest in Verisk Analytics, Inc. (NASDAQ:VRSK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare VRSK to other stocks including Discover Financial Services (NYSE:DFS), Cummins Inc. (NYSE:CMI), and Coca-Cola European Partners plc (NYSE:CCEP) to get a better sense of its popularity. 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' 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_69704" align="aligncenter" width="450"] Andrew Sandler of Sandler 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 take a look at the fresh hedge fund action regarding Verisk Analytics, Inc. (NASDAQ:VRSK).
Hedge fund activity in Verisk Analytics, Inc. (NASDAQ:VRSK)
At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in VRSK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Akre Capital Management, managed by Charles Akre, holds the largest position in Verisk Analytics, Inc. (NASDAQ:VRSK). Akre Capital Management has a $402.3 million position in the stock, comprising 4% of its 13F portfolio. On Akre Capital Management's heels is Israel Englander of Millennium Management, with a $55 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism comprise Phill Gross and Robert Atchinson's Adage Capital Management, Greg Poole's Echo Street Capital Management and James Parsons's Junto Capital Management. In terms of the portfolio weights assigned to each position Akre Capital Management allocated the biggest weight to Verisk Analytics, Inc. (NASDAQ:VRSK), around 3.97% of its portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 1.71 percent of its 13F equity portfolio to VRSK.
Due to the fact that Verisk Analytics, Inc. (NASDAQ:VRSK) has experienced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of money managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Renaissance Technologies said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $37.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also sold off its stock, about $23.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Verisk Analytics, Inc. (NASDAQ:VRSK) but similarly valued. We will take a look at Discover Financial Services (NYSE:DFS), Cummins Inc. (NYSE:CMI), Coca-Cola European Partners plc (NYSE:CCEP), and TD Ameritrade Holding Corp. (NASDAQ:AMTD). All of these stocks' market caps are similar to VRSK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DFS,37,935893,-2 CMI,31,857313,-14 CCEP,16,125523,6 AMTD,29,334275,7 Average,28.25,563251,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $563 million. That figure was $668 million in VRSK's case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 16 bullish hedge fund positions. Verisk Analytics, Inc. (NASDAQ:VRSK) 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 VRSK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VRSK were disappointed as the stock returned -6.7% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.