Hedge Funds Have Never Been This Bullish On RLI Corp. (RLI)

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 28. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards RLI Corp. (NYSE:RLI).


Is RLI Corp. (NYSE:RLI) undervalued? Hedge funds are buying. The number of bullish hedge fund bets inched up by 2 lately. Our calculations also showed that RLI isn't among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.


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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


RLI_oct2019


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to check out the new hedge fund action regarding RLI Corp. (NYSE:RLI).

What have hedge funds been doing with RLI Corp. (NYSE:RLI)?


At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the first quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in RLI a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).


Tom Gayner


The largest stake in RLI Corp. (NYSE:RLI) was held by Markel Gayner Asset Management, which reported holding $102.6 million worth of stock at the end of March. It was followed by Royce & Associates with a $25.7 million position. Other investors bullish on the company included Polar Capital, GLG Partners, and Winton Capital Management.


With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in RLI Corp. (NYSE:RLI). Citadel Investment Group had $1.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new RLI investors: Paul Tudor Jones's Tudor Investment Corp, Matthew Hulsizer's PEAK6 Capital Management, and Steve Cohen's Point72 Asset Management.


Let's go over hedge fund activity in other stocks similar to RLI Corp. (NYSE:RLI). We will take a look at Mirati Therapeutics, Inc. (NASDAQ:MRTX), Amedisys Inc (NASDAQ:AMED), FibroGen Inc (NASDAQ:FGEN), and ACI Worldwide Inc (NASDAQ:ACIW). This group of stocks' market caps are closest to RLI's market cap.


[table]
Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position
MRTX,27,1623476,-1
AMED,24,209888,-2
FGEN,16,316897,-5
ACIW,23,356703,0
Average,22.5,626741,-2
[/table]


View table here if you experience formatting issues.


As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $172 million in RLI's case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand FibroGen Inc (NASDAQ:FGEN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks RLI Corp. (NYSE:RLI) is even less popular than FGEN. Hedge funds clearly dropped the ball on RLI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on RLI as the stock returned 8.7% during the third quarter and outperformed the market by an even larger margin.


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

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