“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards The Travelers Companies, Inc. (NYSE:TRV).
The Travelers Companies, Inc. (NYSE:TRV) has seen a decrease in hedge fund interest recently. TRV was in 26 hedge funds’ portfolios at the end of the third quarter of 2018. There were 28 hedge funds in our database with TRV positions at the end of the previous quarter. Our calculations also showed that trv isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s analyze the latest hedge fund action regarding The Travelers Companies, Inc. (NYSE:TRV).
How have hedgies been trading The Travelers Companies, Inc. (NYSE:TRV)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TRV over the last 13 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of The Travelers Companies, Inc. (NYSE:TRV), with a stake worth $459.7 million reported as of the end of September. Trailing Berkshire Hathaway was AQR Capital Management, which amassed a stake valued at $339.5 million. Two Sigma Advisors, Arrowstreet Capital, and Polar Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that The Travelers Companies, Inc. (NYSE:TRV) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes in the third quarter. Interestingly, Jim Simons’s Renaissance Technologies dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $44.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $15.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Travelers Companies, Inc. (NYSE:TRV) but similarly valued. These stocks are Anadarko Petroleum Corporation (NYSE:APC), Equinix Inc (NASDAQ:EQIX), Analog Devices, Inc. (NASDAQ:ADI), and Fiat Chrysler Automobiles NV (NYSE:FCAU). This group of stocks’ market values are similar to TRV’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.39 billion. That figure was $1.20 billion in TRV’s case. Anadarko Petroleum Corporation (NYSE:APC) is the most popular stock in this table. On the other hand Analog Devices, Inc. (NASDAQ:ADI) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks The Travelers Companies, Inc. (NYSE:TRV) is even less popular than ADI. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.