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Is Greenlight Capital Re, Ltd. (GLRE) A Good Stock To Buy?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Greenlight Capital Re, Ltd. (NASDAQ:GLRE) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Greenlight Capital Re, Ltd. (NASDAQ:GLRE) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. GLRE was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 3 hedge funds in our database with GLRE holdings at the end of the previous quarter. Our calculations also showed that GLRE isn’t among the 30 most popular stocks among hedge funds (see the video below).
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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

GLRE_nov2019

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We’re going to analyze the latest hedge fund action regarding Greenlight Capital Re, Ltd. (NASDAQ:GLRE).

Hedge fund activity in Greenlight Capital Re, Ltd. (NASDAQ:GLRE)

At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 167% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in GLRE over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Nathaniel August - Mangrove Partners

More specifically, Mangrove Partners was the largest shareholder of Greenlight Capital Re, Ltd. (NASDAQ:GLRE), with a stake worth $1.9 million reported as of the end of March. Trailing Mangrove Partners was Two Sigma Advisors, which amassed a stake valued at $0.5 million. Almitas Capital, Horizon Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names have jumped into Greenlight Capital Re, Ltd. (NASDAQ:GLRE) headfirst. Mangrove Partners, managed by Nathaniel August, created the most valuable position in Greenlight Capital Re, Ltd. (NASDAQ:GLRE). Mangrove Partners had $1.9 million invested in the company at the end of the quarter. Ron Mass’s Almitas Capital also initiated a $0.5 million position during the quarter. The following funds were also among the new GLRE investors: Paul Tudor Jones’s Tudor Investment Corp, Israel Englander’s Millennium Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Greenlight Capital Re, Ltd. (NASDAQ:GLRE) but similarly valued. These stocks are Regional Management Corp (NYSE:RM), Limelight Networks, Inc. (NASDAQ:LLNW), DSP Group, Inc. (NASDAQ:DSPG), and Drive Shack Inc. (NYSE:DS). This group of stocks’ market values resemble GLRE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RM 11 68103 -2
LLNW 11 34264 -1
DSPG 15 61381 2
DS 8 6494 -2
Average 11.25 42561 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $4 million in GLRE’s case. DSP Group, Inc. (NASDAQ:DSPG) is the most popular stock in this table. On the other hand Drive Shack Inc. (NYSE:DS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Greenlight Capital Re, Ltd. (NASDAQ:GLRE) is even less popular than DS. Hedge funds clearly dropped the ball on GLRE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on GLRE as the stock returned 23.7% during the third quarter and outperformed the market by an even larger margin.

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

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