Do Hedge Funds Love The Progressive Corporation (PGR)?

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Reymerlyn Martin

Mon, Jun 10, 2019, 6:17 PM

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

Is The Progressive Corporation (NYSE:PGR) a great investment today? The smart money is turning less bullish. The number of bullish hedge fund positions fell by 4 in recent months. Our calculations also showed that PGR isn't among the 30 most popular stocks among hedge funds.

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 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.

Let's analyze the fresh hedge fund action surrounding The Progressive Corporation (NYSE:PGR).

What does the smart money think about The Progressive Corporation (NYSE:PGR)?

Heading into the second quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PGR over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons's Renaissance Technologies has the biggest position in The Progressive Corporation (NYSE:PGR), worth close to $521 million, comprising 0.5% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $276 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of Cliff Asness's AQR Capital Management, John Overdeck and David Siegel's Two Sigma Advisors and D. E. Shaw's D E Shaw.

Seeing as The Progressive Corporation (NYSE:PGR) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few fund managers who were dropping their positions entirely last quarter. Intriguingly, Israel Englander's Millennium Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising about $124.1 million in stock, and Joe DiMenna's ZWEIG DIMENNA PARTNERS was right behind this move, as the fund dumped about $11.3 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let's go over hedge fund activity in other stocks similar to The Progressive Corporation (NYSE:PGR). We will take a look at Emerson Electric Co. (NYSE:EMR), Altaba Inc. (NASDAQ:AABA), Relx PLC (NYSE:RELX), and Air Products & Chemicals, Inc. (NYSE:APD). This group of stocks' market valuations resemble PGR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EMR,44,961297,10 AABA,76,15298507,3 RELX,7,97404,2 APD,34,829383,-2 Average,40.25,4296648,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $4297 million. That figure was $1918 million in PGR's case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 7 bullish hedge fund positions. The Progressive Corporation (NYSE:PGR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on PGR as the stock returned 11.3% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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