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Hedge Funds Are Buying Third Point Reinsurance Ltd (TPRE)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Third Point Reinsurance Ltd (NYSE:TPRE) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Third Point Reinsurance Ltd (NYSE:TPRE) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. TPRE investors should pay attention to an increase in hedge fund sentiment lately. There were 17 hedge funds in our database with TPRE positions at the end of the first quarter. Our calculations also showed that TPRE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to analyze the fresh hedge fund action surrounding Third Point Reinsurance Ltd (NYSE:TPRE).

Hedge fund activity in Third Point Reinsurance Ltd (NYSE:TPRE)

At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. On the other hand, there were a total of 20 hedge funds with a bullish position in TPRE a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is TPRE A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Third Point Reinsurance Ltd (NYSE:TPRE), with a stake worth $8.5 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $6.7 million. Arrowstreet Capital, Sonic Capital, and Two Sigma Advisors 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 Sonic Capital allocated the biggest weight to Third Point Reinsurance Ltd (NYSE:TPRE), around 1.5% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, dishing out 0.9 percent of its 13F equity portfolio to TPRE.

Consequently, key hedge funds were breaking ground themselves. Almitas Capital, managed by Ron Mass, initiated the biggest position in Third Point Reinsurance Ltd (NYSE:TPRE). Almitas Capital had $0.3 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.2 million position during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners and Chuck Royce’s Royce & Associates.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Third Point Reinsurance Ltd (NYSE:TPRE) but similarly valued. These stocks are The E.W. Scripps Company (NYSE:SSP), P.H. Glatfelter Company (NYSE:GLT), Sculptor Capital Management, Inc. (NYSE:SCU), Golar LNG Limited (NASDAQ:GLNG), HealthStream, Inc. (NASDAQ:HSTM), RAPT Therapeutics, Inc. (NASDAQ:RAPT), and Criteo SA (NASDAQ:CRTO). 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
SSP 14 81177 2
GLT 6 28088 -5
SCU 10 69460 -2
GLNG 17 158965 7
HSTM 17 53377 0
RAPT 7 10253 2
CRTO 11 61639 -2
Average 11.7 66137 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $37 million in TPRE’s case. Golar LNG Limited (NASDAQ:GLNG) is the most popular stock in this table. On the other hand P.H. Glatfelter Company (NYSE:GLT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Third Point Reinsurance Ltd (NYSE:TPRE) is more popular among hedge funds. Our overall hedge fund sentiment score for TPRE is 83. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 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 -7.5% during the third 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.