Did Hedge Funds Make The Right Call On W.R. Berkley Corporation (WRB) ?

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 W.R. Berkley Corporation (NYSE:WRB) and determine whether hedge funds had an edge regarding this stock.

W.R. Berkley Corporation (NYSE:WRB) has seen a decrease in enthusiasm from smart money recently. WRB was in 26 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with WRB positions at the end of the previous quarter. Our calculations also showed that WRB 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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. Keeping this in mind let’s analyze the new hedge fund action encompassing W.R. Berkley Corporation (NYSE:WRB).

Hedge fund activity in W.R. Berkley Corporation (NYSE:WRB)

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WRB over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in W.R. Berkley Corporation (NYSE:WRB) was held by Polar Capital, which reported holding $62 million worth of stock at the end of September. It was followed by AQR Capital Management with a $49.3 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Gillson Capital. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to W.R. Berkley Corporation (NYSE:WRB), around 2.03% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 0.67 percent of its 13F equity portfolio to WRB.

Due to the fact that W.R. Berkley Corporation (NYSE:WRB) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few hedge funds that slashed their full holdings in the first quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $21.2 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $3.9 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 8 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as W.R. Berkley Corporation (NYSE:WRB) but similarly valued. We will take a look at NiSource Inc. (NYSE:NI), DaVita Inc (NYSE:DVA), Masimo Corporation (NASDAQ:MASI), and BeiGene, Ltd. (NASDAQ:BGNE). This group of stocks’ market caps resemble WRB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NI 27 641894 -1
DVA 43 3657786 5
MASI 31 156950 1
BGNE 11 2174312 -5
Average 28 1657736 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1658 million. That figure was $208 million in WRB’s case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 11 bullish hedge fund positions. W.R. Berkley Corporation (NYSE:WRB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 and surpassed the market by 15.5 percentage points. Unfortunately WRB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WRB investors were disappointed as the stock returned 10% 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 in 2020.

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