Verisk Analytics, Inc. (VRSK) vs. Top 20 Hedge Fund Stocks in 2019
It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in 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. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Discover Financial Services (NYSE:DFS), Cummins Inc. (NYSE:CMI), and Coca-Cola European Partners plc (NYSE:CCEP) to gather more data points. Our calculations also showed that VRSK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 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_69704" align="aligncenter" width="450"]
Andrew Sandler of Sandler Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's take a peek at the key hedge fund action regarding Verisk Analytics, Inc. (NASDAQ:VRSK).
How are hedge funds trading Verisk Analytics, Inc. (NASDAQ:VRSK)?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in VRSK a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Akre Capital Management was the largest shareholder of Verisk Analytics, Inc. (NASDAQ:VRSK), with a stake worth $402.3 million reported as of the end of September. Trailing Akre Capital Management was Millennium Management, which amassed a stake valued at $55 million. Adage Capital Management, Echo Street Capital Management, and Junto Capital 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 Akre Capital Management allocated the biggest weight to Verisk Analytics, Inc. (NASDAQ:VRSK), around 3.97% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, designating 1.71 percent of its 13F equity portfolio to VRSK.
Since Verisk Analytics, Inc. (NASDAQ:VRSK) has faced falling interest from the smart money, it's safe to say that there exists a select few money managers that slashed their entire stakes in the third quarter. Intriguingly, Renaissance Technologies dropped the biggest investment of the 750 funds monitored by Insider Monkey, worth close to $37.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $23.7 million worth. These transactions are intriguing to say the least, as total 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 match 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on VRSK, though not to the same extent, as the stock returned 38.1% during 2019 (as of 12/23) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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