How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding RenaissanceRe Holdings Ltd. (NYSE:RNR).
Is RNR a good stock to buy? RenaissanceRe Holdings Ltd. (NYSE:RNR) investors should pay attention to a decrease in support from the world’s most elite money managers lately. RenaissanceRe Holdings Ltd. (NYSE:RNR) was in 37 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 41. Our calculations also showed that RNR 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.
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 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 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.
Steven Cohen of Point72 Asset Management
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. Now we’re going to go over the fresh hedge fund action regarding RenaissanceRe Holdings Ltd. (NYSE:RNR).
Do Hedge Funds Think RNR Is A Good Stock To Buy Now?
At Q3’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in RNR over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of RenaissanceRe Holdings Ltd. (NYSE:RNR), with a stake worth $146.1 million reported as of the end of September. Trailing Point72 Asset Management was Samlyn Capital, which amassed a stake valued at $142.8 million. Renaissance Technologies, Polar Capital, and Diamond Hill Capital 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 BlueMar Capital Management allocated the biggest weight to RenaissanceRe Holdings Ltd. (NYSE:RNR), around 6.97% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, earmarking 6.28 percent of its 13F equity portfolio to RNR.
Judging by the fact that RenaissanceRe Holdings Ltd. (NYSE:RNR) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who sold off their entire stakes heading into Q4. At the top of the heap, Ravi Chopra’s Azora Capital dumped the biggest position of the 750 funds tracked by Insider Monkey, totaling an estimated $12.4 million in stock. Daniel Johnson’s fund, Gillson Capital, also dumped its stock, about $6.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to RenaissanceRe Holdings Ltd. (NYSE:RNR). These stocks are Paylocity Holding Corp (NASDAQ:PCTY), Concho Resources Inc. (NYSE:CXO), Guidewire Software Inc (NYSE:GWRE), GCI Liberty, Inc. (NASDAQ:GLIBA), Camden Property Trust (NYSE:CPT), Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR), and CureVac N.V. (NASDAQ:CVAC). This group of stocks’ market values are similar to RNR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCTY | 27 | 505551 | 3 |
| CXO | 47 | 731966 | 3 |
| GWRE | 34 | 1087613 | 5 |
| GLIBA | 48 | 2311934 | -5 |
| CPT | 25 | 327898 | -1 |
| EBR | 4 | 1572 | -4 |
| CVAC | 9 | 54175 | 9 |
| Average | 27.7 | 717244 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $806 million in RNR’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR) is the least popular one with only 4 bullish hedge fund positions. RenaissanceRe Holdings Ltd. (NYSE:RNR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RNR is 65.6. 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. 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 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 beat the market again by 16.4 percentage points. Unfortunately RNR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RNR were disappointed as the stock returned -2.1% since the end of September (through 12/18) 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.
Follow Renaissancere Holdings Ltd (NYSE:RNR)
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Disclosure: None. This article was originally published at Insider Monkey.
