How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Alleghany Corporation (NYSE:Y) and determine whether hedge funds had an edge regarding this stock.
Alleghany Corporation (NYSE:Y) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Alleghany Corporation (NYSE:Y) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 34. There were 32 hedge funds in our database with Y holdings at the end of June. Our calculations also showed that Y isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Chuck Royce of Royce & Associates
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a peek at the fresh hedge fund action encompassing Alleghany Corporation (NYSE:Y).
Do Hedge Funds Think Y Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards Y over the last 25 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, holds the number one position in Alleghany Corporation (NYSE:Y). Polar Capital has a $111 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $65.4 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass Chuck Royce’s Royce & Associates, John D. Gillespie’s Prospector Partners and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Alleghany Corporation (NYSE:Y), around 2.94% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 0.95 percent of its 13F equity portfolio to Y.
Since Alleghany Corporation (NYSE:Y) has experienced falling interest from the smart money, we can see that there is a sect of money managers who were dropping their positions entirely in the third quarter. At the top of the heap, Matthew Stadelman’s Diamond Hill Capital cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $53.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $5.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Alleghany Corporation (NYSE:Y). We will take a look at Western Midstream Partners, LP (NYSE:WES), Cameco Corporation (NYSE:CCJ), Vornado Realty Trust (NYSE:VNO), Flex Ltd. (NASDAQ:FLEX), Ovintiv Inc. (NYSE:OVV), The Gap Inc. (NYSE:GPS), and CRISPR Therapeutics AG (NASDAQ:CRSP). All of these stocks’ market caps match Y’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WES | 10 | 141259 | 1 |
| CCJ | 35 | 755744 | 10 |
| VNO | 25 | 194723 | -4 |
| FLEX | 35 | 1149382 | -8 |
| OVV | 44 | 684078 | 4 |
| GPS | 28 | 370571 | -15 |
| CRSP | 43 | 1215665 | 9 |
| Average | 31.4 | 644489 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $325 million in Y’s case. Ovintiv Inc. (NYSE:OVV) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 10 bullish hedge fund positions. Alleghany Corporation (NYSE:Y) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for Y is 58.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on Y as the stock returned 6.3% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.
Follow Alleghany Corp (NYSE:Y)
Follow Alleghany Corp (NYSE:Y)
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Disclosure: None. This article was originally published at Insider Monkey.
