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Did Hedge Funds Make The Right Call On Everest Re Group Ltd (RE) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Everest Re Group Ltd (NYSE:RE) and determine whether hedge funds had an edge regarding this stock.

Everest Re Group Ltd (NYSE:RE) has seen an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that RE 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the fresh hedge fund action encompassing Everest Re Group Ltd (NYSE:RE).

What does smart money think about Everest Re Group Ltd (NYSE:RE)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in RE a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Everest Re Group Ltd (NYSE:RE) was held by AQR Capital Management, which reported holding $404.4 million worth of stock at the end of September. It was followed by Polar Capital with a $41.9 million position. Other investors bullish on the company included Point72 Asset Management, Echo Street Capital Management, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position AQR Capital Management allocated the biggest weight to Everest Re Group Ltd (NYSE:RE), around 0.68% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, dishing out 0.53 percent of its 13F equity portfolio to RE.

Consequently, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Everest Re Group Ltd (NYSE:RE). Balyasny Asset Management had $14.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management, and John Brandmeyer and Jonathan C. Angrist’s Cognios Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Everest Re Group Ltd (NYSE:RE) but similarly valued. We will take a look at MGM Growth Properties LLC (NYSE:MGP), MongoDB, Inc. (NASDAQ:MDB), United Airlines Holdings Inc (NASDAQ:UAL), and VICI Properties Inc. (NYSE:VICI). This group of stocks’ market caps resemble RE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGP 28 546863 -1
MDB 30 770189 -2
UAL 41 1908897 -21
VICI 36 921752 -1
Average 33.75 1036925 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1037 million. That figure was $558 million in RE’s case. United Airlines Holdings Inc (NASDAQ:UAL) is the most popular stock in this table. On the other hand MGM Growth Properties LLC (NYSE:MGP) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Everest Re Group Ltd (NYSE:RE) is even less popular than MGP. Hedge funds dodged a bullet by taking a bearish stance towards RE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately RE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); RE investors were disappointed as the stock returned 8% during the second quarter 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 most of these stocks already outperformed the market so far in 2020.

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