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Hedge Funds Have Never Been More Bullish On Everest Re Group Ltd (RE)

In this article you are going to find out whether hedge funds think Everest Re Group Ltd (NYSE:RE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Everest Re Group Ltd (NYSE:RE) a superb stock to buy now? The smart money is turning bullish. The number of long hedge fund positions increased by 3 in recent months. Our calculations also showed that RE 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). RE was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with RE positions 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.

Steven Cohen

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding Everest Re Group Ltd (NYSE:RE).

What does smart money think about Everest Re Group Ltd (NYSE:RE)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RE over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is RE A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Everest Re Group Ltd (NYSE:RE). AQR Capital Management has a $404.4 million position in the stock, comprising 0.7% of its 13F portfolio. The second most bullish fund manager is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which holds a $41.9 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism consist of Steve Cohen’s Point72 Asset Management, Greg Poole’s Echo Street Capital Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position AQR Capital Management allocated the biggest weight to Everest Re Group Ltd (NYSE:RE), around 0.68% of its 13F portfolio. Cognios Capital is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to RE.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Everest Re Group Ltd (NYSE:RE). Balyasny Asset Management had $14.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $2.5 million position during the quarter. The other funds with brand new RE positions are Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management, and John Brandmeyer and Jonathan C. Angrist’s Cognios Capital.

Let’s now review hedge fund activity in other stocks similar to Everest Re Group Ltd (NYSE:RE). We will take a look at MGM Growth Properties LLC (NYSE:MGP), MongoDB, Inc. (NASDAQ:MDB), United Airlines Holdings Inc (NYSE:UAL), and VICI Properties Inc. (NYSE:VICI). This group of stocks’ market valuations match RE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGP 28 546863 -1
MDB 30 770189 -2
UAL 41 1908897 -21
VICI 36 921752 -1
Average 33.75 1036925 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1037 million. That figure was $558 million in RE’s case. United Airlines Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand MGM Growth Properties LLC (NYSE:MGP) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Everest Re Group Ltd (NYSE:RE) is even less popular than MGP. Hedge funds dodged a bullet by taking a bearish stance towards RE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately RE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); RE investors were disappointed as the stock returned 3.9% during the second quarter (through the end of May) 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 so far in 2020.

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

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