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Did Hedge Funds Drop The Ball On Everest Re Group Ltd (RE) ?

The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance 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 nearly 9 percentage points. 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 Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Everest Re Group Ltd (NYSE:RE) and find out how it is affected by hedge funds’ moves.

Is Everest Re Group Ltd (NYSE:RE) a buy here? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 8 in recent months. Our calculations also showed that re isn’t among the 30 most popular stocks among hedge funds. RE was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. There were 27 hedge funds in our database with RE holdings at the end of the previous quarter.

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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

We’re going to take a look at the new hedge fund action encompassing Everest Re Group Ltd (NYSE:RE).

How have hedgies been trading Everest Re Group Ltd (NYSE:RE)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RE over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RE Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in Everest Re Group Ltd (NYSE:RE). AQR Capital Management has a $268.9 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Noam Gottesman of GLG Partners, with a $38.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, Peter Seuss’s Prana Capital Management and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

Since Everest Re Group Ltd (NYSE:RE) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who sold off their positions entirely heading into Q3. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $21.8 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also cut its stock, about $3.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 8 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Everest Re Group Ltd (NYSE:RE) but similarly valued. These stocks are The Trade Desk, Inc. (NASDAQ:TTD), RingCentral Inc (NYSE:RNG), Vail Resorts, Inc. (NYSE:MTN), and Westlake Chemical Corporation (NYSE:WLK). This group of stocks’ market values match RE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTD 25 492679 9
RNG 43 1207897 -5
MTN 28 379860 2
WLK 26 364816 2
Average 30.5 611313 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $538 million in RE’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Everest Re Group Ltd (NYSE:RE) is even less popular than TTD. Hedge funds clearly dropped the ball on RE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on RE as the stock returned 14.3% during the same period and outperformed the market by an even larger margin.

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

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