We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Ambac Financial Group, Inc. (NASDAQ:AMBC).
Hedge fund interest in Ambac Financial Group, Inc. (NASDAQ:AMBC) 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 AMBC to other stocks including Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Trupanion Inc (NYSE:TRUP), and BBVA Banco Frances S.A. (NYSE:BBAR) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are assumed to be slow, old investment vehicles of yesteryear. While there are more than 8000 funds trading today, Our experts choose to focus on the leaders of this club, about 750 funds. These hedge fund managers orchestrate bulk of the hedge fund industry’s total asset base, and by shadowing their finest picks, Insider Monkey has figured out several investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Michael Hintze of CQS Cayman LP
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action encompassing Ambac Financial Group, Inc. (NASDAQ:AMBC).
What does smart money think about Ambac Financial Group, Inc. (NASDAQ:AMBC)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in AMBC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Emanuel J. Friedman’s EJF Capital has the biggest position in Ambac Financial Group, Inc. (NASDAQ:AMBC), worth close to $40.5 million, accounting for 5.5% of its total 13F portfolio. Coming in second is William C. Martin of Raging Capital Management, with a $24.5 million position; 4% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass Michael Hintze’s CQS Cayman LP, Jeffrey Gendell’s Tontine Asset Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Ambac Financial Group, Inc. (NASDAQ:AMBC), around 5.52% of its 13F portfolio. Raging Capital Management is also relatively very bullish on the stock, setting aside 3.95 percent of its 13F equity portfolio to AMBC.
Since Ambac Financial Group, Inc. (NASDAQ:AMBC) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds who were dropping their full holdings heading into Q4. It’s worth mentioning that Noam Gottesman’s GLG Partners dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $5.2 million in stock. Dan Kamensky’s fund, Marble Ridge Capital, also cut its stock, about $2.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ambac Financial Group, Inc. (NASDAQ:AMBC) but similarly valued. These stocks are Nova Measuring Instruments Ltd. (NASDAQ:NVMI), Trupanion Inc (NYSE:TRUP), BBVA Banco Frances S.A. (NYSE:BBAR), and Extreme Networks, Inc (NASDAQ:EXTR). This group of stocks’ market caps are similar to AMBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVMI | 10 | 167598 | 1 |
| TRUP | 10 | 122985 | 0 |
| BBAR | 9 | 6431 | 1 |
| EXTR | 16 | 120270 | -3 |
| Average | 11.25 | 104321 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $108 million in AMBC’s case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand BBVA Banco Frances S.A. (NYSE:BBAR) is the least popular one with only 9 bullish hedge fund positions. Ambac Financial Group, Inc. (NASDAQ:AMBC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on AMBC, though not to the same extent, as the stock returned 6.5% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
