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Did Hedge Funds Make The Right Call On Erie Indemnity Company (ERIE) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Erie Indemnity Company (NASDAQ:ERIE) based on that data and determine whether they were really smart about the stock.

Erie Indemnity Company (NASDAQ:ERIE) has seen a decrease in hedge fund sentiment recently. Our calculations also showed that ERIE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s view the recent hedge fund action regarding Erie Indemnity Company (NASDAQ:ERIE).

How have hedgies been trading Erie Indemnity Company (NASDAQ:ERIE)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ERIE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in Erie Indemnity Company (NASDAQ:ERIE), which was worth $18.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $13.1 million worth of shares. AQR Capital Management, Millennium Management, and Citadel Investment Group 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 Royce & Associates allocated the biggest weight to Erie Indemnity Company (NASDAQ:ERIE), around 0.25% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to ERIE.

Seeing as Erie Indemnity Company (NASDAQ:ERIE) has faced a decline in interest from the smart money, we can see that there is a sect of funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest position of the 750 funds followed by Insider Monkey, comprising close to $4.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $3.5 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Erie Indemnity Company (NASDAQ:ERIE). We will take a look at Apollo Global Management Inc (NYSE:APO), Globe Life Inc. (NYSE:GL), RPM International Inc. (NYSE:RPM), and Host Hotels and Resorts Inc (NYSE:HST). This group of stocks’ market values are similar to ERIE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APO 34 1487468 5
GL 22 574230 -1
RPM 22 191448 -9
HST 24 130445 -3
Average 25.5 595898 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $63 million in ERIE’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Erie Indemnity Company (NASDAQ:ERIE) is even less popular than GL. Hedge funds clearly dropped the ball on ERIE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on ERIE as the stock returned 43.5% since the end of March and outperformed the market by an even larger margin.

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