Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
The Hanover Insurance Group Inc (NYSE:THG) was in 16 hedge funds’ portfolios at the end of the third quarter of 2016. THG investors should be aware of a decrease in activity from the world’s largest hedge funds recently. There were 19 hedge funds in our database with THG holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as SINA Corp (NASDAQ:SINA), Medical Properties Trust, Inc. (NYSE:MPW), and Tribune Media Co (NYSE:TRCO) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Hedge fund activity in The Hanover Insurance Group Inc (NYSE:THG)
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 16% fall from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards THG over the last 5 quarters, which has remained in a narrow range. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the most valuable position in The Hanover Insurance Group Inc (NYSE:THG), worth close to $49.9 million. On AQR Capital Management’s heels is Renaissance Technologies, led by Jim Simons, holding a $39.5 million position. Other members of the smart money that are bullish contain Israel Englander’s Millennium Management, David E. Shaw’s D E Shaw, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually dropped their positions entirely. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $1.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.5 million worth.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Hanover Insurance Group Inc (NYSE:THG) but similarly valued. These stocks are SINA Corp (NASDAQ:SINA), Medical Properties Trust, Inc. (NYSE:MPW), Tribune Media Co (NYSE:TRCO), and Euronet Worldwide, Inc. (NASDAQ:EEFT). All of these stocks’ market caps resemble THG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $625 million. That figure was $172 million in THG’s case. SINA Corp (NASDAQ:SINA) is the most popular stock in this table. On the other hand Euronet Worldwide, Inc. (NASDAQ:EEFT) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks The Hanover Insurance Group Inc (NYSE:THG) is even less popular than EEFT. 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.