The average insurance company, as represented by the SPDR S&P Insurance ETF (KIE), is up about 9% YTD and is within striking range of multi-year highs, as the immense write-downs taken during the 2008-09 recession become a fading memory. It is expected that growth will remain sluggish near-term due to the weak economy, a high unemployment rate, and fiscal challenges. In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the insurance sector companies that are being accumulated and those being distributed by the world's largest fund managers.
These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are bullish on the insurance group, adding a net $424 million in Q1 to their $142.37 billion prior quarter position in the group (for more general information on these mega funds, please look at the end of the article).
The investing activities of these mega fund managers in the group in the prior quarter can be found here. The following are the insurance sector companies that these mega fund managers are most bullish about (see Table):
American International Group (AIG): AIG is a diversified insurance company that offers group and individual life insurance, annuities and general property and casualty insurance worldwide. Mega funds together added a net 18.41 million shares in Q1 to their 106.96 million share prior quarter position in the company, and taken together mega funds held $3.99 billion or 7.00% of the outstanding shares.
The top buyer was Vanguard Group, with $1.7 trillion in assets under management, that purchased 4.08 million shares. Other large mega fund purchasers included the world's largest and most prominent asset manager, BlackRock Inc. (3.58 million shares), with over $3.5 trillion in assets under management, State Street Corp. (2.92 million shares), with over $2 trillion in assets under management, and Morgan Stanley (2.69 million shares), with $186 billion in 13-F assets. Overall, institutional investors loaded up heavily on AIG in Q1, adding 73.2 million shares to their 319.3 million share prior quarter position.
AIG, among the most battered companies during the 2008-09 meltdown, and credited by many to be among the primary catalysts that led to the market collapse in 2008-09, has made a surprising comeback lately. After share prices fell over 99.9% to a low of around $6, shares have since surged into the $30s, currently trading within 10% of its 52-week high of $35, and up about 40% YTD. In fact, shares have done so well in a relatively short period of time that the U.S. taxpayer stands to make a profit in the range of $15 billion on the bailout investment of $182 billion that was made at the depths of the 2008-09 recession, a nice return on its investment, with the added bonus of having saved the American economy.
In its latest Q1 (March), AIG beat analyst earnings estimates by a wide margin ($1.65 v/s $1.12). The shares since that report in early May have been in a consolidation pattern, trading at 10 forward P/E and 0.6 P/B compared to averages of 10.2 and 0.8 for its peers in the multi-line insurance group. We opined in our earlier coverage in mid-May that with earnings projected to explode from $1.02 in 2011 to $3.24 in 2013, AIG shares looked attractive, especially if they were to pull-back even further to the $28-$30 range. We stand behind that assessment, and feel vindicated by the strength in share prices since the dip in late-May just below the $28 range.
Other insurance companies that mega fund managers are bullish about include:
- MetLife Inc. (MET), that offers life, non-medical health, auto and home-owners insurance, annuities and financial services, in which mega funds together added a net 14.47 million shares to their 347.32 million share prior quarter position in the company;
- Prudential Financial Inc. (PRU), that 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, in which mega funds together added a net 5.72 million shares to their 148.79 million share prior quarter position in the company;
- ACE Ltd. (ACE), that is a provider of personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance products, in which mega funds together added a net 3.61 million shares to their 150.55 million share prior quarter position in the company; and
- Loews Corp. (L), that is a diversified holding company including being a provider of commercial property and casualty insurance, the operation of offshore oil & gas drillings rigs, an operator of interstate natural gas pipeline systems, and an operator of top luxury hotels, in which mega funds together added a net 2.42 million shares to their 64.69 million share prior quarter position in the company.
The following are insurance companies that mega funds are bearish about (see Table):
- Travelers Companies Inc. (TRV), a provider of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the U.S., in which mega funds together cut a net 11.63 million shares from their 140.22 million share prior quarter position in the company;
- Hartford Financial Services Group (HIG) offers individual and group life, group disability and property and casualty insurance products, primarily in the U.S., in which mega funds together cut a net 12.88 million shares from their 154.51 million share prior quarter position in the company;
- Allstate Corp. (ALL), a provider of personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S., in which mega funds together cut a net 3.15 million shares from their 151.97 million share prior quarter position in the company;
- AFLAC Inc. (AFL), a provider of health, accident, disability and life insurance in the U.S. and Japan, in which mega funds together cut a net 1.27 million shares from their 131.43 million share prior quarter position in the company; and
- The Chubb Corp. (CB), that is provider of property and casualty insurance products, in which mega funds together cut a net 0.56 million shares from their 113.50 million share prior quarter position in the company.
Furthermore, the following are additional notable holdings of mega funds in the insurance group (see Table):
- Progressive Corp. Ohio (PGR), that offers private passenger automobile insurance policies in all 50 states and D.C., in which mega funds together hold 147.76 million or 24.2% of the outstanding shares;
- MGIC Investment Corp. (MTG), that offers private mortgage insurance for homeowners that put down less than 20% down payment when purchasing their homes, in which mega funds together hold 48.87 million or 24.3% of the outstanding shares; and
- MBI Inc. (MBI), that offers financial guarantee insurance and related reinsurance, advisory and portfolio services for the public and structured finance markets, and asset management advisory services in the U.S. and internationally, in which mega funds together hold 20.41 million or 10.5% of the outstanding shares.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors 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.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.