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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is W.R. Berkley Corporation (NYSE:WRB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is W.R. Berkley Corporation (NYSE:WRB) a buy here? Investors who are in the know are becoming hopeful. The number of long hedge fund positions inched up by 8 lately. Our calculations also showed that WRB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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’ 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 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 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.
Israel Englander of Millennium Management
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. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding W.R. Berkley Corporation (NYSE:WRB).
How are hedge funds trading W.R. Berkley Corporation (NYSE:WRB)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in WRB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the largest position in W.R. Berkley Corporation (NYSE:WRB), worth close to $105.5 million, comprising 0.1% of its total 13F portfolio. Coming in second is Polar Capital, led by Brian Ashford-Russell and Tim Woolley, holding a $82.1 million position; 0.7% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish comprise Cliff Asness’s AQR Capital Management, David Harding’s Winton Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to W.R. Berkley Corporation (NYSE:WRB), around 1.06% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.81 percent of its 13F equity portfolio to WRB.
Consequently, some big names were leading the bulls’ herd. Renaissance Technologies, managed by initiated the most valuable position in W.R. Berkley Corporation (NYSE:WRB). Renaissance Technologies had $15.2 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $3.9 million position during the quarter. The following funds were also among the new WRB investors: Benjamin A. Smith’s Laurion Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as W.R. Berkley Corporation (NYSE:WRB) but similarly valued. These stocks are Vornado Realty Trust (NYSE:VNO), Teledyne Technologies Incorporated (NYSE:TDY), Centrais Eletricas Brasileiras SA (NYSE:EBR), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks’ market caps are similar to WRB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNO | 31 | 688640 | -6 |
| TDY | 24 | 546627 | -7 |
| EBR | 7 | 21678 | 2 |
| XRAY | 28 | 1468190 | -2 |
| Average | 22.5 | 681284 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $681 million. That figure was $418 million in WRB’s case. Vornado Realty Trust (NYSE:VNO) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras SA (NYSE:EBR) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks W.R. Berkley Corporation (NYSE:WRB) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately WRB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WRB were disappointed as the stock returned -31.1% during the first two and a half months of 2020 (through March 16th) 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
