At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Assurant, Inc. (NYSE:AIZ) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Assurant, Inc. (NYSE:AIZ) has seen a decrease in hedge fund sentiment recently. Assurant, Inc. (NYSE:AIZ) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. There were 33 hedge funds in our database with AIZ holdings at the end of March. Our calculations also showed that AIZ isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
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 56 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a peek at the recent hedge fund action regarding Assurant, Inc. (NYSE:AIZ).
How are hedge funds trading Assurant, Inc. (NYSE:AIZ)?
At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AIZ over the last 20 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Andreas Halvorsen’s Viking Global has the largest position in Assurant, Inc. (NYSE:AIZ), worth close to $291.9 million, comprising 1.3% of its total 13F portfolio. On Viking Global’s heels is Samlyn Capital, managed by Robert Pohly, which holds a $163 million position; the fund has 3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish contain Andrew Wellington and Jeff Keswin’s Lyrical Asset Management, Cliff Asness’s AQR Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position One Fin Capital Management allocated the biggest weight to Assurant, Inc. (NYSE:AIZ), around 7.9% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, earmarking 3.29 percent of its 13F equity portfolio to AIZ.
Since Assurant, Inc. (NYSE:AIZ) has witnessed declining sentiment from the smart money, it’s safe to say that there is a sect of hedge funds who were dropping their full holdings in the second quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dropped the largest investment of all the hedgies tracked by Insider Monkey, valued at about $0.5 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to Assurant, Inc. (NYSE:AIZ). These stocks are Encompass Health Corporation (NYSE:EHC), ADT Inc. (NYSE:ADT), Adaptive Biotechnologies Corporation (NASDAQ:ADPT), Zai Lab Limited (NASDAQ:ZLAB), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), Ares Capital Corporation (NASDAQ:ARCC), and National Retail Properties, Inc. (NYSE:NNN). This group of stocks’ market caps resemble AIZ’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $745 million. That figure was $823 million in AIZ’s case. Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 17 bullish hedge fund positions. Assurant, Inc. (NYSE:AIZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AIZ is 68. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on AIZ as the stock returned 16.2% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.