Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Reinsurance Group of America Inc (NYSE:RGA)? The smart money sentiment can provide an answer to this question.
Is RGA a good stock to buy? Money managers were getting less optimistic. The number of long hedge fund bets went down by 2 lately. Reinsurance Group of America Inc (NYSE:RGA) was in 31 hedge funds’ portfolios at the end of September. The all time high for this statistic is 33. Our calculations also showed that RGA isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a gander at the key hedge fund action regarding Reinsurance Group of America Inc (NYSE:RGA).
Do Hedge Funds Think RGA Is A Good Stock To Buy Now?
At third quarter’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RGA over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Diamond Hill Capital was the largest shareholder of Reinsurance Group of America Inc (NYSE:RGA), with a stake worth $51.5 million reported as of the end of September. Trailing Diamond Hill Capital was Pzena Investment Management, which amassed a stake valued at $45.5 million. Polar Capital, Point72 Asset Management, and Millennium 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 GMT Capital allocated the biggest weight to Reinsurance Group of America Inc (NYSE:RGA), around 0.52% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, dishing out 0.33 percent of its 13F equity portfolio to RGA.
Judging by the fact that Reinsurance Group of America Inc (NYSE:RGA) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of money managers that slashed their full holdings by the end of the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $3.3 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Reinsurance Group of America Inc (NYSE:RGA) but similarly valued. These stocks are Encompass Health Corporation (NYSE:EHC), Churchill Downs Incorporated (NASDAQ:CHDN), Regency Centers Corp (NASDAQ:REG), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Vornado Realty Trust (NYSE:VNO), Kingsoft Cloud Holdings Limited (NASDAQ:KC), and Reynolds Consumer Products Inc. (NASDAQ:REYN). All of these stocks’ market caps match RGA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $258 million in RGA’s case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand Reynolds Consumer Products Inc. (NASDAQ:REYN) is the least popular one with only 18 bullish hedge fund positions. Reinsurance Group of America Inc (NYSE:RGA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RGA is 77.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on RGA as the stock returned 21% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.