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Hedge Funds Are Crazy About RLI Corp. (RLI)

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at RLI Corp. (NYSE:RLI) from the perspective of those elite funds.

RLI Corp. (NYSE:RLI) has seen an increase in hedge fund sentiment lately. RLI was in 11 hedge funds’ portfolios at the end of the third quarter of 2018. There were 10 hedge funds in our database with RLI positions at the end of the previous quarter. Our calculations also showed that rli isn’t among the 30 most popular stocks among hedge funds.

Hedge https://www.insidermonkey.com/blog/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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Tom Gayner

Let’s take a peek at the recent hedge fund action surrounding RLI Corp. (NYSE:RLI).

What does the smart money think about RLI Corp. (NYSE:RLI)?

Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in RLI heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RLI Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tom Gayner’s Markel Gayner Asset Management has the most valuable position in RLI Corp. (NYSE:RLI), worth close to $94.1 million, comprising 1.6% of its total 13F portfolio. The second largest stake is held by Chuck Royce of Royce & Associates, with a $32 million position; 0.2% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, Noam Gottesman’s GLG Partners and D. E. Shaw’s D E Shaw.

Now, key money managers were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the most valuable call position in RLI Corp. (NYSE:RLI). PEAK6 Capital Management had $0.5 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $0.4 million investment in the stock during the quarter. The other funds with brand new RLI positions are Michael Platt and William Reeves’s BlueCrest Capital Mgmt. and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s now review hedge fund activity in other stocks similar to RLI Corp. (NYSE:RLI). We will take a look at Sprouts Farmers Market Inc (NASDAQ:SFM), American National Insurance Company (NASDAQ:ANAT), PS Business Parks Inc (NYSE:PSB), and Qualys Inc (NASDAQ:QLYS). This group of stocks’ market valuations are closest to RLI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFM 19 298608 3
ANAT 13 40807 1
PSB 6 60694 -2
QLYS 18 220821 1
Average 14 155233 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $163 million in RLI’s case. Sprouts Farmers Market Inc (NASDAQ:SFM) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 6 bullish hedge fund positions. RLI Corp. (NYSE:RLI) 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. In this regard SFM might be a better candidate to consider a long position.

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

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