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Did Hedge Funds Make The Right Call On Reinsurance Group of America Inc (RGA) ?

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 Reinsurance Group of America Inc (NYSE:RGA) and determine whether hedge funds skillfully traded this stock.

Is Reinsurance Group of America Inc (NYSE:RGA) a good investment today? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets went up by 3 lately. Our calculations also showed that RGA 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). RGA was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with RGA positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a multitude of methods stock market investors put to use to appraise publicly traded companies. Some of the less known methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best investment managers can beat the market by a healthy amount (see the details here).

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Reinsurance Group of America Inc (NYSE:RGA).

Hedge fund activity in Reinsurance Group of America Inc (NYSE:RGA)

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in RGA a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large 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 biggest position in Reinsurance Group of America Inc (NYSE:RGA). AQR Capital Management has a $60.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Diamond Hill Capital, led by Ric Dillon, holding a $50.9 million position; 0.3% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism consist of Brian Ashford-Russell and Tim Woolley’s Polar Capital, Renaissance Technologies and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Polar Capital allocated the biggest weight to Reinsurance Group of America Inc (NYSE:RGA), around 0.4% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to RGA.

Now, key money managers have jumped into Reinsurance Group of America Inc (NYSE:RGA) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, created the most outsized position in Reinsurance Group of America Inc (NYSE:RGA). PEAK6 Capital Management had $3.4 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $2.9 million position during the quarter. The following funds were also among the new RGA investors: Benjamin A. Smith’s Laurion Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Reinsurance Group of America Inc (NYSE:RGA) but similarly valued. We will take a look at Vereit Inc (NYSE:VER), Healthcare Trust Of America Inc (NYSE:HTA), Exelixis, Inc. (NASDAQ:EXEL), and Apartment Investment and Management Co. (NYSE:AIV). This group of stocks’ market valuations resemble RGA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VER 18 314967 -10
HTA 16 106529 5
EXEL 30 935037 7
AIV 21 395202 -3
Average 21.25 437934 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $438 million. That figure was $276 million in RGA’s case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 16 bullish hedge fund positions. Reinsurance Group of America Inc (NYSE:RGA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately RGA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RGA were disappointed as the stock returned -6% 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.

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