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Did Hedge Funds Make The Right Call On Third Point Reinsurance Ltd (TPRE)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtThird Point Reinsurance Ltd (NYSE:TPRE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Third Point Reinsurance Ltd (NYSE:TPRE) a buy right now? The smart money was in a pessimistic mood. The number of bullish hedge fund bets went down by 3 in recent months. Our calculations also showed that TPRE 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). TPRE was in 17 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with TPRE positions at the end of the previous quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

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. 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. Now let’s take a look at the recent hedge fund action surrounding Third Point Reinsurance Ltd (NYSE:TPRE).

How are hedge funds trading Third Point Reinsurance Ltd (NYSE:TPRE)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in TPRE a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

The largest stake in Third Point Reinsurance Ltd (NYSE:TPRE) was held by Renaissance Technologies, which reported holding $10.3 million worth of stock at the end of September. It was followed by D E Shaw with a $5.8 million position. Other investors bullish on the company included GLG Partners, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Sonic Capital allocated the biggest weight to Third Point Reinsurance Ltd (NYSE:TPRE), around 2.26% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 1.09 percent of its 13F equity portfolio to TPRE.

Because Third Point Reinsurance Ltd (NYSE:TPRE) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest position of the 750 funds followed by Insider Monkey, valued at close to $2.9 million in stock, and Nathaniel August’s Mangrove Partners was right behind this move, as the fund cut about $1.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Third Point Reinsurance Ltd (NYSE:TPRE). We will take a look at Novavax, Inc. (NASDAQ:NVAX), INTL Fcstone Inc (NASDAQ:INTL), BRP Inc. (NASDAQ:DOOO), and Trinseo S.A. (NYSE:TSE). This group of stocks’ market caps are closest to TPRE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVAX 4 11335 1
INTL 10 83773 1
DOOO 10 52931 1
TSE 17 26358 -1
Average 10.25 43599 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $40 million in TPRE’s case. Trinseo S.A. (NYSE:TSE) is the most popular stock in this table. On the other hand Novavax, Inc. (NASDAQ:NVAX) is the least popular one with only 4 bullish hedge fund positions. Third Point Reinsurance Ltd (NYSE:TPRE) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately TPRE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on TPRE were disappointed as the stock returned 9% 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.