Hedge Funds Are Dumping White Mountains Insurance Group Ltd (WTM)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards White Mountains Insurance Group Ltd (NYSE:WTM).

Is White Mountains Insurance Group Ltd (NYSE:WTM) an outstanding stock to buy now? Prominent investors are selling. The number of long hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that WTM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action encompassing White Mountains Insurance Group Ltd (NYSE:WTM).

Hedge fund activity in White Mountains Insurance Group Ltd (NYSE:WTM)

Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WTM over the last 18 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Wallace Capital Management was the largest shareholder of White Mountains Insurance Group Ltd (NYSE:WTM), with a stake worth $78.2 million reported as of the end of September. Trailing Wallace Capital Management was Elkhorn Partners, which amassed a stake valued at $25.6 million. Renaissance Technologies, AQR Capital Management, and Impax Asset Management 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 Elkhorn Partners allocated the biggest weight to White Mountains Insurance Group Ltd (NYSE:WTM), around 14.7% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, dishing out 10.74 percent of its 13F equity portfolio to WTM.

Judging by the fact that White Mountains Insurance Group Ltd (NYSE:WTM) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Robert Joseph Caruso’s Select Equity Group dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising close to $8.6 million in stock, and John D. Gillespie’s Prospector Partners was right behind this move, as the fund dumped about $3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as White Mountains Insurance Group Ltd (NYSE:WTM) but similarly valued. These stocks are BlackBerry Limited (NYSE:BB), Liberty Latin America Ltd. (NASDAQ:LILAK), Cameco Corporation (NYSE:CCJ), and Tandem Diabetes Care Inc (NASDAQ:TNDM). This group of stocks’ market values resemble WTM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BB 27 470870 -3
LILAK 21 443479 -1
CCJ 28 329012 3
TNDM 39 518462 2
Average 28.75 440456 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $164 million in WTM’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Liberty Latin America Ltd. (NASDAQ:LILAK) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks White Mountains Insurance Group Ltd (NYSE:WTM) is even less popular than LILAK. Hedge funds dodged a bullet by taking a bearish stance towards WTM. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately WTM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WTM investors were disappointed as the stock returned -24.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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