Is Everest Re Group Ltd (NYSE:RE) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Everest Re Group Ltd (NYSE:RE) was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. RE has seen a decrease in hedge fund sentiment recently. There were 23 hedge funds in our database with RE positions at the end of the previous quarter. Our calculations also showed that RE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 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 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.
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. Let’s take a look at the latest hedge fund action encompassing Everest Re Group Ltd (NYSE:RE).
Hedge fund activity in Everest Re Group Ltd (NYSE:RE)
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in RE a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Everest Re Group Ltd (NYSE:RE), which was worth $453.7 million at the end of the third quarter. On the second spot was Polar Capital which amassed $53.2 million worth of shares. GLG Partners, Pzena Investment Management, and Echo Street Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Selz Capital allocated the biggest weight to Everest Re Group Ltd (NYSE:RE), around 2.01% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, earmarking 1.8 percent of its 13F equity portfolio to RE.
Seeing as Everest Re Group Ltd (NYSE:RE) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who sold off their positions entirely heading into Q4. It’s worth mentioning that Matthew Tewksbury’s Stevens Capital Management cut the biggest position of the 750 funds watched by Insider Monkey, comprising about $8 million in stock, and David E. Shaw’s D E Shaw was right behind this move, as the fund sold off about $6.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Everest Re Group Ltd (NYSE:RE) but similarly valued. These stocks are Varian Medical Systems, Inc. (NYSE:VAR), Tractor Supply Company (NASDAQ:TSCO), TechnipFMC plc (NYSE:FTI), and SVB Financial Group (NASDAQ:SIVB). This group of stocks’ market valuations are similar to RE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VAR | 27 | 381320 | 2 |
| TSCO | 36 | 639730 | 1 |
| FTI | 31 | 767800 | 6 |
| SIVB | 39 | 597276 | 13 |
| Average | 33.25 | 596532 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $667 million in RE’s case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand Varian Medical Systems, Inc. (NYSE:VAR) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Everest Re Group Ltd (NYSE:RE) is even less popular than VAR. Hedge funds dodged a bullet by taking a bearish stance towards RE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RE investors were disappointed as the stock returned 1.9% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
