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Were Hedge Funds Right About Old Republic International Corporation (ORI)?

Asma UL Husna

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Old Republic International Corporation (NYSE:ORI) and determine whether hedge funds skillfully traded this stock.

Old Republic International Corporation (NYSE:ORI) investors should pay attention to an increase in enthusiasm from smart money in recent months. ORI was in 27 hedge funds' portfolios at the end of March. There were 20 hedge funds in our database with ORI positions at the end of the previous quarter. Our calculations also showed that ORI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are assumed to be unimportant, old investment vehicles of years past. While there are over 8000 funds with their doors open at the moment, We choose to focus on the crème de la crème of this club, about 850 funds. These investment experts have their hands on most of the smart money's total asset base, and by shadowing their matchless equity investments, Insider Monkey has uncovered numerous investment strategies that have historically exceeded the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_758450" align="aligncenter" width="392"] Martin Whitman of Third Avenue Management[/caption]

Martin Whitman Third Avenue Management Marty Whitman

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the fresh hedge fund action encompassing Old Republic International Corporation (NYSE:ORI).

How have hedgies been trading Old Republic International Corporation (NYSE:ORI)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the fourth quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in ORI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in Old Republic International Corporation (NYSE:ORI), worth close to $76.7 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $56.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Cliff Asness's AQR Capital Management, Martin Whitman's Third Avenue Management and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Old Republic International Corporation (NYSE:ORI), around 1.8% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, dishing out 0.29 percent of its 13F equity portfolio to ORI.

Consequently, some big names have been driving this bullishness. Third Avenue Management, managed by Martin Whitman, initiated the most outsized position in Old Republic International Corporation (NYSE:ORI). Third Avenue Management had $12.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $11 million position during the quarter. The following funds were also among the new ORI investors: Michael Gelband's ExodusPoint Capital, Bruce Kovner's Caxton Associates LP, and Greg Eisner's Engineers Gate Manager.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Old Republic International Corporation (NYSE:ORI) but similarly valued. These stocks are Caesars Entertainment Corp (NASDAQ:CZR), HD Supply Holdings Inc (NASDAQ:HDS), Euronet Worldwide, Inc. (NASDAQ:EEFT), and Enel Chile S.A. (NYSE:ENIC). This group of stocks' market values resemble ORI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CZR,47,2040793,1 HDS,40,856283,2 EEFT,30,240212,-17 ENIC,8,17690,2 Average,31.25,788745,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $789 million. That figure was $241 million in ORI's case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 8 bullish hedge fund positions. Old Republic International Corporation (NYSE:ORI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ORI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ORI investors were disappointed as the stock returned 8.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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