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Did Hedge Funds Make The Right Call On The Hanover Insurance Group, Inc. (THG) ?

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 The Hanover Insurance Group, Inc. (NYSE:THG) based on that data and determine whether they were really smart about the stock.

Is The Hanover Insurance Group, Inc. (NYSE:THG) the right investment to pursue these days? Prominent investors were turning bullish. The number of long hedge fund positions advanced by 3 lately. Our calculations also showed that THG 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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. With all of this in mind let’s take a glance at the new hedge fund action regarding The Hanover Insurance Group, Inc. (NYSE:THG).

How have hedgies been trading The Hanover Insurance Group, Inc. (NYSE:THG)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in THG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is THG A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of The Hanover Insurance Group, Inc. (NYSE:THG), with a stake worth $37.5 million reported as of the end of September. Trailing AQR Capital Management was Two Sigma Advisors, which amassed a stake valued at $18.7 million. Pzena Investment Management, Millennium Management, and Gillson Capital 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 Prospector Partners allocated the biggest weight to The Hanover Insurance Group, Inc. (NYSE:THG), around 1.42% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 1.39 percent of its 13F equity portfolio to THG.

As industrywide interest jumped, some big names have jumped into The Hanover Insurance Group, Inc. (NYSE:THG) headfirst. Renaissance Technologies, initiated the biggest position in The Hanover Insurance Group, Inc. (NYSE:THG). Renaissance Technologies had $6 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $5 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka’s AlphaCrest Capital Management, Ken Griffin’s Citadel Investment Group, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Hanover Insurance Group, Inc. (NYSE:THG) but similarly valued. These stocks are Switch, Inc. (NYSE:SWCH), TCF Financial Corporation (NYSE:TCF), Emcor Group Inc (NYSE:EME), and Ormat Technologies, Inc. (NYSE:ORA). This group of stocks’ market values are closest to THG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWCH 24 394487 6
TCF 19 100615 -5
EME 24 201184 -5
ORA 9 164907 -7
Average 19 215298 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $135 million in THG’s case. Switch, Inc. (NYSE:SWCH) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 9 bullish hedge fund positions. The Hanover Insurance Group, Inc. (NYSE:THG) 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 THG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on THG were disappointed as the stock returned 12.5% 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.