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Is Chubb Limited (CB) Going to Burn These Hedge Funds?

Is Chubb Limited (NYSE:CB) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Chubb Limited (NYSE:CB) was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. CB has experienced an increase in enthusiasm from smart money of late. There were 25 hedge funds in our database with CB holdings at the end of the previous quarter. Our calculations also showed that CB 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.

Phill Gross of Adage Capital Management

Phill Gross of Adage Capital Management

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 fresh hedge fund action encompassing Chubb Limited (NYSE:CB).

How are hedge funds trading Chubb Limited (NYSE:CB)?

At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in CB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with CB Positions

The largest stake in Chubb Limited (NYSE:CB) was held by Polar Capital, which reported holding $196.7 million worth of stock at the end of September. It was followed by AQR Capital Management with a $98 million position. Other investors bullish on the company included Adage Capital Management, Millennium Management, and Polaris Capital Management. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to Chubb Limited (NYSE:CB), around 2.24% of its portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 1.77 percent of its 13F equity portfolio to CB.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Chubb Limited (NYSE:CB). Balyasny Asset Management had $31.5 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $8.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and Jeffrey Talpins’s Element Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chubb Limited (NYSE:CB) but similarly valued. These stocks are Sony Corporation (NYSE:SNE), Ambev SA (NYSE:ABEV), The Estee Lauder Companies Inc (NYSE:EL), and China Petroleum & Chemical Corporation (NYSE:SNP). This group of stocks’ market values are similar to CB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNE 26 783005 -9
ABEV 18 384746 2
EL 43 1850698 7
SNP 13 178003 2
Average 25 799113 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $799 million. That figure was $613 million in CB’s case. The Estee Lauder Companies Inc (NYSE:EL) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corporation (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. Chubb Limited (NYSE:CB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 CB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CB were disappointed as the stock returned -6.2% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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