Insurance stocks have had a relatively weak 2016, performing quite at par with major U.S. stock indexes. The iShares Dow Jones US Insurance Index ETF (NYSEARCA:IAK), which was down 2.44% over the first quarter, has managed to recuperate and is now slightly in the green year-to-date – versus the Dow Jones’ 2.50% surge. The SPDR S&P Insurance ETF (NYSEARCA:KIE) has done better; even in spite of a 0.37% tumble over the first three months of the year, the ETF has rebounded and is up roughly 3% year-to-date. But, what about individual stocks? How did they do? Are there any sound investments in the industry? In order to find out, we will take a look into five life insurance stocks that saw multiple hedge funds disclose long stakes by the end of the first quarter of 2016, into their performance since the culmination of this period, and into some recent news impacting the companies.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5. American Equity Investment Life Holding (NYSE:AEL)
Let’s start with small cap American Equity Investment Life Holding (NYSE:AEL), which saw the number of hedge funds –among those we track- long its stock rise by 10.5% over the first quarter of the year to 21. Their combined stakes, worth more than $100 million, accounted for roughly 7.6% of the company’s shares outstanding as of March 31. One of the most bullish moves of the quarter was that of Richard S. Pzena’s Pzena Investment Management, which started a new stake, comprising 590,141 shares, over the quarter; the position was valued at almost $10 million by March 31.
Since the second quarter started, shares of American Equity Investment Life Holding (NYSE:AEL) fell by over 5%, mainly driven by news about the intention of U.S. Labor Department regulators to make the rules for selling complex products like indexed annuities stricter and by a top and bottom line miss: its first-quarter EPS of $0.60 missed estimates by $0.02, while revenue of $450.83 million came in $15.8 million below the consensus estimate.
#4. Genworth Financial Inc (NYSE:GNW)
Next up is Genworth Financial Inc (NYSE:GNW), which saw 22 funds in our database holding stakes representing 8.4% of the float at the end of the first quarter. The small-cap mortgage insurance products provider, once again, had Pzena Investment Management among its largest institutional investors, with 6.87 million shares, and Himanshu H. Shah’s Shah Capital Management, which increased its stake by 50% on the quarter to 4.69 million shares, or $12.8 million in stock.
Since the first quarter ended, the stock has gained more than 23%, mainly on the back of its first quarter earnings release in late April. EPS of $0.21 beat the Street’s consensus by $0.07 and, even though revenue of $1.785 billion fell well short of expectations of $2.175 billion, investors seemed satisfied with the operating profit and CEO Tom McInerney’s work to free up capital to meet the company’s debt payments.
The top three life insurance stocks among hedge funds are analyzed on the next page.
#3. Lincoln National Corporation (NYSE:LNC)
Third in this list is Lincoln National Corporation (NYSE:LNC), which witnessed a 26% surge in hedge fund support over the first quarter. As of March 31, 29 firms in our database held long stakes in the company, having amassed 6.6% of its outstanding stock. One of the largest positions was the one held by Ken Griffin’s Citadel Advisors, which almost tripled its exposure to the stock over the January-March period, disclosing ownership of 2.78 million shares, worth more than $109 million as of March 31.
Lincoln National’s stock has lost 14% since the beginning of 2016. Most recently, the stock was helped by record new home sales data, which led many traders to boost their bets on a possibility of an interest rate hike, driving yield-hungry financials up, although the latest non-farm payroll data was very disappointing which pushed the prospects of a hike further away.
#2. Voya Financial Inc (NYSE:VOYA)
In spite of a 16.6% reduction in hedge fund support over the firs quarter, Voya Financial Inc (NYSE:VOYA) occupies the runner-up position in our list. According to our calculations, the 30 funds with long stakes in the company by March 31 held more than 15.5% of its total shares outstanding, or almost $1 billion in stock.
Shares of Voya Financial Inc (NYSE:VOYA), which plummeted 19.34% over the first quarter, have inched up by 2% since the beginning of April. Recently the company announced the monthly distributions on the common shares of two of its Voya Investment Management closed-end funds. Returns for the Voya Global Equity Div & Prm Oppty Fund (NYSE:IGD) came in at $0.076 per share, and returns for the Voya International High Div Eqt Incm Fd (NYSE:IID) came in at $0.069 per share.
#1. Metlife Inc (NYSE:MET)
Finally, there’s Metlife Inc (NYSE:MET), which witnessed an increase of almost 22% in hedge fund support over the first quarter of 2016. By March 31, the company counted 50 hedge fund backers in our database, which held 3.4% of its float. The most valuable position was that of Ric Dillon’s Diamond Hill Capital, which last disclosed ownership of 7.36 million shares, worth more than $323 million.
Shares of Metlife Inc (NYSE:MET) are down by over 10% year-to-date, although analysts remain bullish on the stock and earlier this month, Argus reiterated its ‘Buy’ rating, while last month Bank of America maintained its ‘Buy’ rating and RBC Capital reiterated its ‘Outperform’ rating, but lowered the price target to $62 from $65.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned in this article.