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 Chubb Limited (NYSE:CB) and determine whether hedge funds skillfully traded this stock.
Chubb Limited (NYSE:CB) investors should be aware of an increase in enthusiasm from smart money of late. Chubb Limited (NYSE:CB) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. There were 33 hedge funds in our database with CB positions at the end of the first quarter. Our calculations also showed that CB isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we’re going to view the recent hedge fund action surrounding Chubb Limited (NYSE:CB).
What have hedge funds been doing with Chubb Limited (NYSE:CB)?
At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in CB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Chubb Limited (NYSE:CB) was held by Citadel Investment Group, which reported holding $282.4 million worth of stock at the end of September. It was followed by Viking Global with a $278.8 million position. Other investors bullish on the company included Polar Capital, AQR Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Chubb Limited (NYSE:CB), around 8.76% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 3.95 percent of its 13F equity portfolio to CB.
Consequently, key money managers have jumped into Chubb Limited (NYSE:CB) headfirst. Point72 Asset Management, managed by Steve Cohen, established the most valuable position in Chubb Limited (NYSE:CB). Point72 Asset Management had $63.7 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also made a $35.8 million investment in the stock during the quarter. The following funds were also among the new CB investors: Dmitry Balyasny’s Balyasny Asset Management, Louis Bacon’s Moore Global Investments, and Daniel Lascano’s Lomas Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chubb Limited (NYSE:CB) but similarly valued. These stocks are Ecolab Inc. (NYSE:ECL), Takeda Pharmaceutical Company Limited (NYSE:TAK), U.S. Bancorp (NYSE:USB), Applied Materials, Inc. (NASDAQ:AMAT), Illinois Tool Works Inc. (NYSE:ITW), America Movil SAB de CV (NYSE:AMX), and The Southern Company (NYSE:SO). All of these stocks’ market caps are similar to CB’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1811 million. That figure was $1288 million in CB’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Chubb Limited (NYSE:CB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CB is 64.9. 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. This is a slightly positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately CB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CB were disappointed as the stock returned -1.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.