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Were Hedge Funds Right About Warming Up To Selective Insurance Group (SIGI)?

Abigail Fisher

The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Selective Insurance Group, Inc. (NASDAQ:SIGI) and find out how it is affected by hedge funds' moves.

Is Selective Insurance Group, Inc. (NASDAQ:SIGI) the right investment to pursue these days? Hedge funds are taking a bullish view. The number of long hedge fund bets went up by 2 recently. Our calculations also showed that SIGI isn't among the 30 most popular stocks among hedge funds (see the video below). SIGI was in 14 hedge funds' portfolios at the end of June. There were 12 hedge funds in our database with SIGI holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

SIGI_oct2019

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the fresh hedge fund action surrounding Selective Insurance Group, Inc. (NASDAQ:SIGI).

What have hedge funds been doing with Selective Insurance Group, Inc. (NASDAQ:SIGI)?

At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in SIGI a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Dmitry Balyasny

More specifically, GLG Partners was the largest shareholder of Selective Insurance Group, Inc. (NASDAQ:SIGI), with a stake worth $11.3 million reported as of the end of March. Trailing GLG Partners was Prospector Partners, which amassed a stake valued at $10.5 million. AQR Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, specific money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Selective Insurance Group, Inc. (NASDAQ:SIGI). Citadel Investment Group had $4.2 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $2.4 million position during the quarter. The other funds with brand new SIGI positions are Matthew Hulsizer's PEAK6 Capital Management, Phil Frohlich's Prescott Group Capital Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Selective Insurance Group, Inc. (NASDAQ:SIGI) but similarly valued. We will take a look at Manhattan Associates, Inc. (NASDAQ:MANH), Silicon Laboratories Inc. (NASDAQ:SLAB), The Wendy's Company (NASDAQ:WEN), and Fluor Corporation (NYSE:FLR). All of these stocks' market caps resemble SIGI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MANH,17,425498,-1 SLAB,18,73662,6 WEN,24,914976,-3 FLR,21,286630,-1 Average,20,425192,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $425 million. That figure was $44 million in SIGI's case. The Wendy's Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand Manhattan Associates, Inc. (NASDAQ:MANH) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Selective Insurance Group, Inc. (NASDAQ:SIGI) is even less popular than MANH. Hedge funds dodged a bullet by taking a bearish stance towards SIGI. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SIGI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SIGI investors were disappointed as the stock returned 0.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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