Hedge Funds Are Cashing Out Of Cincinnati Financial Corporation (CINF)

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 Cincinnati Financial Corporation (NASDAQ:CINF) and determine whether hedge funds had an edge regarding this stock.

Cincinnati Financial Corporation (NASDAQ:CINF) has experienced a decrease in activity from the world’s largest hedge funds of late. Cincinnati Financial Corporation (NASDAQ:CINF) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. There were 31 hedge funds in our database with CINF positions at the end of the first quarter. Our calculations also showed that CINF 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.

David Siegel of Two Sigma Advisors

David Siegel 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. Now let’s review the fresh hedge fund action surrounding Cincinnati Financial Corporation (NASDAQ:CINF).

Hedge fund activity in Cincinnati Financial Corporation (NASDAQ:CINF)

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CINF over the last 20 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the number one position in Cincinnati Financial Corporation (NASDAQ:CINF), worth close to $525.6 million, accounting for 3% of its total 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $25.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Thyra Zerhusen’s Fairpointe Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Cincinnati Financial Corporation (NASDAQ:CINF), around 3.02% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 1.96 percent of its 13F equity portfolio to CINF.

Due to the fact that Cincinnati Financial Corporation (NASDAQ:CINF) has faced falling interest from hedge fund managers, it’s safe to say that there was a specific group of funds who sold off their full holdings by the end of the second quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $15.2 million in stock, and John D. Gillespie’s Prospector Partners was right behind this move, as the fund dumped about $9.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 11 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cincinnati Financial Corporation (NASDAQ:CINF) but similarly valued. These stocks are Hasbro, Inc. (NASDAQ:HAS), Cognex Corporation (NASDAQ:CGNX), Korea Electric Power Corporation (NYSE:KEP), W.R. Berkley Corporation (NYSE:WRB), Celanese Corporation (NYSE:CE), Discovery Inc. (NASDAQ:DISCA), and Concho Resources Inc. (NYSE:CXO). All of these stocks’ market caps are closest to CINF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HAS 23 149844 -2
CGNX 26 266923 10
KEP 3 25664 -4
WRB 27 350226 1
CE 33 694892 4
DISCA 29 276418 -3
CXO 44 963633 13
Average 26.4 389657 2.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $605 million in CINF’s case. Concho Resources Inc. (NYSE:CXO) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Cincinnati Financial Corporation (NASDAQ:CINF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CINF is 13.4. 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. A small number of hedge funds were also right about betting on CINF as the stock returned 22.7% in the third quarter and outperformed the market by an even larger margin.

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