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James River Group Holdings Ltd (JRVR): Hedge Funds Cashed Out Too Early

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about James River Group Holdings Ltd (NASDAQ:JRVR) in this article.

James River Group Holdings Ltd (NASDAQ:JRVR) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. JRVR was in 10 hedge funds’ portfolios at the end of June. There were 12 hedge funds in our database with JRVR holdings at the end of the previous quarter. Our calculations also showed that JRVR 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.

JRVR_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the new hedge fund action regarding James River Group Holdings Ltd (NASDAQ:JRVR).

What does smart money think about James River Group Holdings Ltd (NASDAQ:JRVR)?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in JRVR a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

David Harding

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in James River Group Holdings Ltd (NASDAQ:JRVR), worth close to $26 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $5.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and David Harding’s Winton Capital Management.

Due to the fact that James River Group Holdings Ltd (NASDAQ:JRVR) has experienced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their full holdings by the end of the second quarter. It’s worth mentioning that Gregg Moskowitz’s Interval Partners said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as James River Group Holdings Ltd (NASDAQ:JRVR) but similarly valued. We will take a look at PPDAI Group Inc. (NYSE:PPDF), American Woodmark Corporation (NASDAQ:AMWD), MRC Global Inc (NYSE:MRC), and Linx S.A. (NYSE:LINX). All of these stocks’ market caps are similar to JRVR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPDF 7 9857 -5
AMWD 9 36128 -3
MRC 15 105613 -3
LINX 14 84329 14
Average 11.25 58982 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 $59 million. That figure was $40 million in JRVR’s case. MRC Global Inc (NYSE:MRC) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 7 bullish hedge fund positions. James River Group Holdings Ltd (NASDAQ:JRVR) is not the least popular stock in this group but hedge fund interest is still below average. 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 JRVR as the stock returned 9.9% during the same time frame and outperformed the market by an even larger margin.

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

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