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In this article, via an analysis (based on the latest available Q3 institutional 13-F filings), we identify the insurance group companies that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers.

We then crossed that data with the insurance group companies that pay high dividends compared to their peers, and those that are trading at a discount valuation based on their projected earnings for FY 2012, and came up with a list of undervalued high dividend yield insurance companies that are being accumulated by these legendary or guru fund managers, and those being distributed by them.

The hedge fund and mutual fund managers included in this select group include only high-profile names who, by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.

We determined, based on our analysis, that guru fund managers are neutral on the insurance group, and during the September quarter, these guru fund managers together added a net $54 million to their $17.34 billion prior quarter position in the group, selling $1.70 billion and buying $1.65 billion worth of stocks in the group. Furthermore, overall they are slightly under-weight in the group by a factor of 0.9; that is taken together guru funds have invested 4.0% of their capital in the internet content group compared to the 4.3% weighting of the group in the overall market.

The following are the insurance group companies that guru fund managers are bullish about, and that also have a high dividend yield and are trading at a discount to their peers in the group:

Allstate Corp. (NYSE:ALL): ALL offers personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S. Guru funds added a net $98 million to their $387 million prior quarter position, and taken together guru funds hold 3.5% of the outstanding shares, more than their 2.5% weighting in the group. The top buyers in Q3 were Viking Global Investors ($61 million), which also added $112 million in the prior quarter; and Oakmark Funds/ Harris Associates LP ($30 million), which also added $13 million in the prior quarter.

Overall, 616 institutions hold 78.8% of ALL shares, with T Rowe Price ($618 million) being the top holder with 4.6% of the outstanding shares. ALL has a dividend yield of 3.1% versus the 2.0% average for its peers in the property & casualty insurance group, and it also trades at a discount 7 forward P/E versus the 13.5 average for the group.

AFLAC Inc. (NYSE:AFL): AFL is a provider of health, accident, disability and life insurance in the U.S. and Japan. Guru funds added a net $109 million in Q3 to their $324 million prior quarter position, and taken together guru funds hold 2.0% of the outstanding shares. The top sellers were RS Investment Management ($190 million) and Oakmark Funds/ Harris Associates ($141 million).

Overall, 785 institutions hold 61.8% of AFL shares, with Vanguard Group ($880 million) and State Street Corp. ($855 million) being the top holders with 4.4% and 4.3% of the outstanding shares respectively. AFL has a dividend yield of 2.7% versus the 0.9% average for its peers in the accident & health insurance group, and it also trades at a discount 6-7 forward P/E versus the 15.3 average for the group.

Principal Financial Group (NYSE:PFG): PFG offers life, health and disability insurance, and it also provides retirement services, annuities, residential mortgage loan origination, and related financial services. Guru funds added a net $2 million to their $51 million prior quarter position, and taken together guru funds hold 0.7% of the outstanding shares. The top guru holder of PFG is Mairs & Power Inc. ($52 million).

Overall, 340 institutions hold 64.8% of PFG shares, Nippon Life Insurance Co. ($440 million) and Northern Trust Corp. ($324 million) being the top holders with 5.9% and 4.4% of the outstanding shares respectively. PFG has a dividend yield of 2.9% versus the 1.9% average for its peers in the multi-line insurance group, and it also trades at a discount 7-8 forward P/E versus the 9.1 average for the group.

Everest Re Group Ltd. (NYSE:RE): Everest offers property and casualty reinsurance and insurance products in the U.S., Bermuda and other International markets. Guru funds added a net $9 million to their $547 million prior quarter position, and taken together guru funds hold 11.1% of the outstanding shares, more than their 2.5% weighting in the group. The top guru holder of Everest is Southeastern Asset Management Inc. ($449 million).

Overall, 285 institutions hold 95.7% of Everest shares, with Southeastern and Goldman Sachs ($390 million) being the top holders with 9.8% and 8.5% of the outstanding shares respectively. Everest has a dividend yield of 2.2% versus the 2.0% average for its peers in the property & casualty insurance group, and it also trades at a discount 7-8 forward P/E versus the 13.5 average for the group.

Prudential Financial Inc. (NYSE:PRU): PRU is one of the largest financial services institutions in the U.S. It offers life insurance, annuities, mutual funds and retirement products in the U.S., Europe, Asia and Latin America. Guru funds added a net $62 million to their $114 million prior quarter position, and taken together guru funds hold 0.7% of the outstanding shares. The top buyers in Q3 were Capital Growth Management ($66 million) and Snow Capital Management ($11 million).

Overall, 636 institutions hold 64.0% of PRU shares, with Vanguard Group ($922 million) and State Street Corp. ($903 million) being the top holders with 3.9% and 3.8% of the outstanding shares respectively. PRU has a dividend yield of 2.9% versus the 1.8% average for its peers in the life insurance group, and it also trades at discount 7-8 forward P/E versus the 9.2 average for the group.

Besides the high-dividend undervalued insurance companies above, the following are the top insurance companies that were sold by guru funds in Q3 (see Table):

MGIC Investment Corp. (NYSE:MTG): MTG offers private mortgage insurance for homeowners that put down less than 20% down payment when purchasing their homes. Guru funds cut a net $31 million from their $92 million prior quarter position. The top seller was RS Investment Management ($32 million). MTG is currently generating losses every quarter, and it does not currently pay a dividend.

MetLife Inc. (NYSE:MET): MET offers life, non-medical health, auto and home-owners insurance, annuities and financial services. Guru funds cut a net $59 million from their $276 million prior quarter position. The top sellers were Appaloosa Management ($44 million), Glenview Capital Management ($44 million) and Viking Global Investors ($28 million). MET has a dividend yield of 2.4% versus the 1.8% average for its peers in the life insurance group, and it also trades at discount 6 forward P/E versus the 9.2 average for the group.

Assured Guaranty Ltd. (NYSE:AGO): AGO offers financial guaranty insurance and reinsurance to the municipal finance, structured finance and mortgage markets. Guru funds cut a net $13 million from their $112 million prior quarter position. The top seller was Fairholme Capital Management ($15 million). AGO has a dividend yield of 1.9% versus, at par with the average for its peers in the multi-line insurance group, and it also trades at a discount 3-4 forward P/E versus the 9.1 average for the group.

General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and in the article.

These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: 5 High-Yielding, Undervalued Insurance Stocks Bought And Sold By Funds In Q3