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Hedge Funds Have Never Been This Bullish On Erie Indemnity Company (ERIE)

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Erie Indemnity Company (NASDAQ:ERIE) makes for a good investment right now.

Is Erie Indemnity Company (NASDAQ:ERIE) a safe stock to buy now? Investors who are in the know are getting more bullish. The number of bullish hedge fund positions inched up by 7 in recent months. Our calculations also showed that ERIE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the key hedge fund action encompassing Erie Indemnity Company (NASDAQ:ERIE).

What does smart money think about Erie Indemnity Company (NASDAQ:ERIE)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 58% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in ERIE a year ago. 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, Royce & Associates, managed by Chuck Royce, holds the largest position in Erie Indemnity Company (NASDAQ:ERIE). Royce & Associates has a $33.6 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $14.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Cliff Asness’s AQR Capital Management, Ray Dalio’s Bridgewater Associates and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Erie Indemnity Company (NASDAQ:ERIE), around 0.31% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to ERIE.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Bridgewater Associates, managed by Ray Dalio, initiated the most outsized position in Erie Indemnity Company (NASDAQ:ERIE). Bridgewater Associates had $7.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $3.1 million position during the quarter. The other funds with brand new ERIE positions are Brandon Haley’s Holocene Advisors, Alec Litowitz and Ross Laser’s Magnetar Capital, and Steve Cohen’s Point72 Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Erie Indemnity Company (NASDAQ:ERIE) but similarly valued. We will take a look at Shaw Communications Inc (NYSE:SJR), American Financial Group, Inc. (NYSE:AFG),  Huazhu Group, Limited (NASDAQ:HTHT), and Viacom, Inc. (NASDAQ:VIAB). This group of stocks’ market values are closest to ERIE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SJR 12 270319 0
AFG 24 421046 2
HTHT 16 192637 2
VIAB 37 727074 -4
Average 22.25 402769 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $84 million in ERIE’s case. Viacom, Inc. (NASDAQ:VIAB) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Erie Indemnity Company (NASDAQ:ERIE) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ERIE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ERIE investors were disappointed as the stock returned -8.3% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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