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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about White Mountains Insurance Group Ltd (NYSE:WTM).
Is WTM a good stock to buy now? White Mountains Insurance Group Ltd (NYSE:WTM) has seen an increase in activity from the world's largest hedge funds recently. White Mountains Insurance Group Ltd (NYSE:WTM) was in 17 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 20. There were 11 hedge funds in our database with WTM holdings at the end of June. Our calculations also showed that WTM isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 we're going to analyze the new hedge fund action surrounding White Mountains Insurance Group Ltd (NYSE:WTM).
Do Hedge Funds Think WTM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 55% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in WTM over the last 21 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, Wallace Capital Management was the largest shareholder of White Mountains Insurance Group Ltd (NYSE:WTM), with a stake worth $54 million reported as of the end of September. Trailing Wallace Capital Management was Elkhorn Partners, which amassed a stake valued at $17.6 million. Impax Asset Management, Citadel Investment Group, and Winton 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 Elkhorn Partners allocated the biggest weight to White Mountains Insurance Group Ltd (NYSE:WTM), around 13.72% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 9.47 percent of its 13F equity portfolio to WTM.
Consequently, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in White Mountains Insurance Group Ltd (NYSE:WTM). Citadel Investment Group had $9.3 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new WTM investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Donald Sussman's Paloma Partners, and Paul Tudor Jones's Tudor Investment Corp.
Let's now take a look at hedge fund activity in other stocks similar to White Mountains Insurance Group Ltd (NYSE:WTM). These stocks are Merit Medical Systems, Inc. (NASDAQ:MMSI), Advanced Energy Industries, Inc. (NASDAQ:AEIS), Masonite International Corp (NYSE:DOOR), Kennametal Inc. (NYSE:KMT), APi Group Corporation (NYSE:APG), Pretium Resources Inc (NYSE:PVG), and Compania Cervecerias Unidas S.A. (NYSE:CCU). All of these stocks' market caps resemble WTM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMSI,20,289828,4 AEIS,21,87181,0 DOOR,29,495473,2 KMT,16,225704,6 APG,28,1065840,1 PVG,20,211653,-3 CCU,5,20216,-3 Average,19.9,342271,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $115 million in WTM's case. Masonite International Corp (NYSE:DOOR) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 5 bullish hedge fund positions. White Mountains Insurance Group Ltd (NYSE:WTM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WTM is 60.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on WTM as the stock returned 26.8% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.