In this article you are going to find out whether hedge funds think White Mountains Insurance Group Ltd (NYSE:WTM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in White Mountains Insurance Group Ltd (NYSE:WTM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare WTM to other stocks including Starwood Property Trust, Inc. (NYSE:STWD), Performance Food Group Company (NYSE:PFGC), and Harley-Davidson, Inc. (NYSE:HOG) to get a better sense of its popularity.
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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 S&P 500 ETFs by 58 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the new hedge fund action surrounding White Mountains Insurance Group Ltd (NYSE:WTM).
What have hedge funds been doing with White Mountains Insurance Group Ltd (NYSE:WTM)?
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in WTM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in White Mountains Insurance Group Ltd (NYSE:WTM) was held by Wallace Capital Management, which reported holding $66.6 million worth of stock at the end of September. It was followed by Elkhorn Partners with a $19.9 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Impax Asset Management. In terms of the portfolio weights assigned to each position Elkhorn Partners allocated the biggest weight to White Mountains Insurance Group Ltd (NYSE:WTM), around 16.52% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 12.78 percent of its 13F equity portfolio to WTM.
Since White Mountains Insurance Group Ltd (NYSE:WTM) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers that slashed their entire stakes last quarter. It’s worth mentioning that Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors cut the biggest position of the 750 funds watched by Insider Monkey, comprising close to $0.4 million in stock, and George Zweig, Shane Haas and Ravi Chander’s Signition LP was right behind this move, as the fund said goodbye to about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to White Mountains Insurance Group Ltd (NYSE:WTM). We will take a look at Starwood Property Trust, Inc. (NYSE:STWD), Performance Food Group Company (NYSE:PFGC), Harley-Davidson, Inc. (NYSE:HOG), and Carter’s, Inc. (NYSE:CRI). All of these stocks’ market caps are closest to WTM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $133 million in WTM’s case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Harley-Davidson, Inc. (NYSE:HOG) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks White Mountains Insurance Group Ltd (NYSE:WTM) is even less popular than HOG. Hedge funds dodged a bullet by taking a bearish stance towards WTM. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately WTM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); WTM investors were disappointed as the stock returned -4% during the second quarter (through June 25th) 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 so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.