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Is CNA Financial Corporation (CNA) Going to Burn These Hedge Funds?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Cna Financial Corporation (NYSE:CNA).

Is Cna Financial Corporation (NYSE:CNA) a healthy stock for your portfolio? Money managers are turning less bullish. The number of long hedge fund bets fell by 1 in recent months. Our calculations also showed that CNA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. 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

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. Now we’re going to go over the fresh hedge fund action surrounding Cna Financial Corporation (NYSE:CNA).

Hedge fund activity in Cna Financial Corporation (NYSE:CNA)

Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CNA over the last 18 quarters. 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, Renaissance Technologies, holds the number one position in Cna Financial Corporation (NYSE:CNA). Renaissance Technologies has a $50.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $5.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Cna Financial Corporation (NYSE:CNA), around 1.5% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to CNA.

Because Cna Financial Corporation (NYSE:CNA) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there exists a select few hedge funds who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Minhua Zhang’s Weld Capital Management dropped the largest stake of the 750 funds watched by Insider Monkey, worth an estimated $0.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dumped its stock, about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Cna Financial Corporation (NYSE:CNA). These stocks are Equitable Holdings, Inc. (NYSE:EQH), Domino’s Pizza, Inc. (NYSE:DPZ), 0, and Open Text Corporation (NASDAQ:OTEX). This group of stocks’ market values are similar to CNA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQH 33 1557170 10
DPZ 31 1995378 -8
J 35 1066423 6
OTEX 14 518546 -1
Average 28.25 1284379 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1284 million. That figure was $83 million in CNA’s case. 0 is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 14 bullish hedge fund positions. Cna Financial Corporation (NYSE:CNA) 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 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 but beat the market by 3.2 percentage points. Unfortunately CNA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CNA investors were disappointed as the stock returned -29.7% during the same time period 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.

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