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Hedge Funds Are Dumping International General Insurance Holdings Ltd. (IGIC)

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 International General Insurance Holdings Ltd. (NASDAQ:IGIC) and determine whether hedge funds had an edge regarding this stock.

Is International General Insurance Holdings Ltd. (NASDAQ:IGIC) a splendid stock to buy now? The smart money was taking a bearish view. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that IGIC 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). IGIC was in 10 hedge funds’ portfolios at the end of March. There were 11 hedge funds in our database with IGIC holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Brad Farber Atika Capital

Brad Farber of Atika Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the fresh hedge fund action regarding International General Insurance Holdings Ltd. (NASDAQ:IGIC).

Hedge fund activity in International General Insurance Holdings Ltd. (NASDAQ:IGIC)

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IGIC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, holds the number one position in International General Insurance Holdings Ltd. (NASDAQ:IGIC). ZWEIG DIMENNA PARTNERS has a $5.8 million position in the stock, comprising 0.8% of its 13F portfolio. The second most bullish fund manager is Atika Capital, led by Brad Farber, holding a $2.8 million position; 0.5% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish consist of Israel Englander’s Millennium Management, Jeffrey Moskowitz’s Harvey Partners and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to International General Insurance Holdings Ltd. (NASDAQ:IGIC), around 1.09% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to IGIC.

Due to the fact that International General Insurance Holdings Ltd. (NASDAQ:IGIC) has faced a decline in interest from the smart money, we can see that there lies a certain “tier” of hedgies that elected to cut their entire stakes by the end of the first quarter. Intriguingly, John Thiessen’s Vertex One Asset Management dropped the largest position of the 750 funds monitored by Insider Monkey, totaling about $10.6 million in stock, and Andrew Weiss’s Weiss Asset Management was right behind this move, as the fund said goodbye to about $3.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as International General Insurance Holdings Ltd. (NASDAQ:IGIC) but similarly valued. We will take a look at Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), Xenon Pharmaceuticals Inc (NASDAQ:XENE), Maverix Metals Inc. (NYSE:MMX), and Byline Bancorp, Inc. (NYSE:BY). This group of stocks’ market caps resemble IGIC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLAY 12 75188 -7
XENE 28 218007 6
MMX 3 12394 1
BY 10 10976 0
Average 13.25 79141 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $12 million in IGIC’s case. Xenon Pharmaceuticals Inc (NASDAQ:XENE) is the most popular stock in this table. On the other hand Maverix Metals Inc. (NYSE:MMX) is the least popular one with only 3 bullish hedge fund positions. International General Insurance Holdings Ltd. (NASDAQ:IGIC) 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 IGIC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IGIC investors were disappointed as the stock returned -13.8% 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.