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Should You Avoid Cincinnati Financial Corporation (CINF)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 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’ recent losses in Facebook. Let’s take a closer look at what the funds we track think about Cincinnati Financial Corporation (NASDAQ:CINF) in this article.

Is Cincinnati Financial Corporation (NASDAQ:CINF) an exceptional investment right now? Prominent investors are turning less bullish. The number of bullish hedge fund bets were trimmed by 4 recently. Our calculations also showed that CINF isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Let’s view the fresh hedge fund action encompassing Cincinnati Financial Corporation (NASDAQ:CINF).

Hedge fund activity in Cincinnati Financial Corporation (NASDAQ:CINF)

Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the second quarter of 2018. By comparison, 21 hedge funds held shares or bullish call options in CINF heading into this year. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

CINF_dec2018

More specifically, Select Equity Group was the largest shareholder of Cincinnati Financial Corporation (NASDAQ:CINF), with a stake worth $455.6 million reported as of the end of September. Trailing Select Equity Group was D E Shaw, which amassed a stake valued at $19 million. Prospector Partners, Renaissance Technologies, and Ancora Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Cincinnati Financial Corporation (NASDAQ:CINF) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who were dropping their positions entirely in the third quarter. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $22.7 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $0.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cincinnati Financial Corporation (NASDAQ:CINF) but similarly valued. These stocks are Advance Auto Parts, Inc. (NYSE:AAP), Kohl’s Corporation (NYSE:KSS), Keysight Technologies Inc (NYSE:KEYS), and Akamai Technologies, Inc. (NASDAQ:AKAM). This group of stocks’ market valuations match CINF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAP 38 1776005 9
KSS 29 954349 3
KEYS 29 630589 3
AKAM 29 784777 1
Average 31.25 1036430 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.04 billion. That figure was $527 million in CINF’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Kohl’s Corporation (NYSE:KSS) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Cincinnati Financial Corporation (NASDAQ:CINF) is even less popular than KSS. 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.

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