Insurance stocks have had a relatively weak 2016, performing quite at par with major U.S. stock indexes. The iShares Dow Jones US Insurance Index ETF (NYSEARCA:IAK), which was down 2.44% over the first quarter, has managed to recuperate and is now slightly in the green year-to-date – versus the Dow Jones’ 2.50% surge. The SPDR S&P Insurance ETF (NYSEARCA:KIE) has done better; even in spite of a 0.37% tumble over the first three months of the year, the ETF has rebounded and is up roughly 3% year-to-date. But, what about individual stocks? How did they do? Are there any sound investments in the industry? In order to find out, we will take a look into five life insurance stocks that saw multiple hedge funds disclose long stakes by the end of the first quarter of 2016, into their performance since the culmination of this period, and into some recent news impacting the companies.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5. American Equity Investment Life Holding (NYSE:AEL)
Let’s start with small cap American Equity Investment Life Holding (NYSE:AEL), which saw the number of hedge funds –among those we track- long its stock rise by 10.5% over the first quarter of the year to 21. Their combined stakes, worth more than $100 million, accounted for roughly 7.6% of the company’s shares outstanding as of March 31. One of the most bullish moves of the quarter was that of Richard S. Pzena’s Pzena Investment Management, which started a new stake, comprising 590,141 shares, over the quarter; the position was valued at almost $10 million by March 31.
Since the second quarter started, shares of American Equity Investment Life Holding (NYSE:AEL) fell by over 5%, mainly driven by news about the intention of U.S. Labor Department regulators to make the rules for selling complex products like indexed annuities stricter and by a top and bottom line miss: its first-quarter EPS of $0.60 missed estimates by $0.02, while revenue of $450.83 million came in $15.8 million below the consensus estimate.
#4. Genworth Financial Inc (NYSE:GNW)
Next up is Genworth Financial Inc (NYSE:GNW), which saw 22 funds in our database holding stakes representing 8.4% of the float at the end of the first quarter. The small-cap mortgage insurance products provider, once again, had Pzena Investment Management among its largest institutional investors, with 6.87 million shares, and Himanshu H. Shah’s Shah Capital Management, which increased its stake by 50% on the quarter to 4.69 million shares, or $12.8 million in stock.
Since the first quarter ended, the stock has gained more than 23%, mainly on the back of its first quarter earnings release in late April. EPS of $0.21 beat the Street’s consensus by $0.07 and, even though revenue of $1.785 billion fell well short of expectations of $2.175 billion, investors seemed satisfied with the operating profit and CEO Tom McInerney’s work to free up capital to meet the company’s debt payments.
The top three life insurance stocks among hedge funds are analyzed on the next page.