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Were Hedge Funds Right About Warming Up To Chubb Limited (CB)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Chubb Limited (NYSE:CB).

Is Chubb Limited (NYSE:CB) a safe stock to buy now? Hedge funds are getting more bullish. The number of long hedge fund bets inched up by 2 recently. Hedge fund sentiment towards Chubb is no where near its 2015 levels but it is improving at the margin. Our calculations also showed that CB isn’t among the 30 most popular stocks among hedge funds.

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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Phill Gross, Adage Capital Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 look at the latest hedge fund action surrounding Chubb Limited (NYSE:CB).

What does smart money think about Chubb Limited (NYSE:CB)?

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in CB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CB Positions

Among these funds, Polar Capital held the most valuable stake in Chubb Limited (NYSE:CB), which was worth $197.2 million at the end of the second quarter. On the second spot was Adage Capital Management which amassed $77.4 million worth of shares. Moreover, AQR Capital Management, Citadel Investment Group, and Polaris Capital Management were also bullish on Chubb Limited (NYSE:CB), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in Chubb Limited (NYSE:CB). Citadel Investment Group had $61.1 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard S. Pzena’s Pzena Investment Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks similar to Chubb Limited (NYSE:CB). These stocks are ConocoPhillips (NYSE:COP), Westpac Banking Corporation (NYSE:WBK), Sony Corporation (NYSE:SNE), and The Estee Lauder Companies Inc (NYSE:EL). This group of stocks’ market valuations are closest to CB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COP 57 3405838 3
WBK 3 37127 -3
SNE 35 1036064 13
EL 36 1355411 -3
Average 32.75 1458610 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1459 million. That figure was $502 million in CB’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 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. 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. Hedge funds were also right about betting on CB as the stock returned 10.1% during the same time frame and outperformed the market by an even larger margin.
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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