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Were Hedge Funds Right About Chubb Limited (CB)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Chubb Limited (NYSE:CB) based on that data.

Chubb Limited (NYSE:CB) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that CB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Phill Gross of Adage Capital Management

Keeping this in mind we’re going to take a look at the new hedge fund action regarding Chubb Limited (NYSE:CB).

Hedge fund activity in Chubb Limited (NYSE:CB)

At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CB over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is CB A Good Stock To Buy?

More specifically, Polar Capital was the largest shareholder of Chubb Limited (NYSE:CB), with a stake worth $185.6 million reported as of the end of September. Trailing Polar Capital was AQR Capital Management, which amassed a stake valued at $130.1 million. Adage Capital Management, Polaris Capital Management, and Voleon 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 Voleon Capital allocated the biggest weight to Chubb Limited (NYSE:CB), around 2.49% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 2.04 percent of its 13F equity portfolio to CB.

Seeing as Chubb Limited (NYSE:CB) has faced a decline in interest from the smart money, it’s safe to say that there was a specific group of hedgies who sold off their entire stakes in the third quarter. Interestingly, Israel Englander’s Millennium Management cut the largest investment of the 750 funds watched by Insider Monkey, comprising close to $71.4 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $31.5 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Chubb Limited (NYSE:CB) but similarly valued. These stocks are PNC Financial Services Group Inc. (NYSE:PNC), Banco Santander, S.A. (NYSE:SAN), The Bank of Nova Scotia (NYSE:BNS), and Dominion Energy, Inc. (NYSE:D). This group of stocks’ market caps are closest to CB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PNC 42 2157090 0
SAN 21 637200 0
BNS 16 413736 0
D 37 773242 -8
Average 29 995317 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $995 million. That figure was $588 million in CB’s case. PNC Financial Services Group Inc. (NYSE:PNC) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 16 bullish hedge fund positions. Chubb Limited (NYSE:CB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately CB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CB investors were disappointed as the stock returned -34.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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