A market correction in the third quarter, spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Alleghany Corporation (NYSE:Y) during the quarter.
Alleghany Corporation (NYSE:Y) was in 30 hedge funds’ portfolios at the end of September. Alleghany Corporation (NYSE:Y) shareholders have witnessed a decrease in the hedge fund sentiment lately. There were 33 hedge funds in our database with Alleghany Corporation (NYSE:Y) holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Global Payments Inc (NYSE:GPN), Sabre Corp (NASDAQ:SABR), and News Corp (NASDAQ:NWS) to gather more data points.
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To the average investor, there are a large number of signals that stock traders put to use to analyze stocks. A duo of the less known signals are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can trounce the broader indices by a solid margin (see the details here).
Keeping this in mind, let’s take a look at the fresh action regarding Alleghany Corporation (NYSE:Y).
How have hedgies been trading Alleghany Corporation (NYSE:Y)?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 9% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the most valuable position in Alleghany Corporation (NYSE:Y). First Pacific Advisors LLC has a $137.7 million position in the stock, comprising 1.2% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, mutual fund led by Chuck Royce, holding a $135.3 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass John Osterweis’ Osterweis Capital Management, Ken Griffin’s Citadel Investment Group, and Martin Whitman’s Third Avenue Management.
Due to the fact that Alleghany Corporation (NYSE:Y) has faced a bearish sentiment from the smart money, it’s easy to see that there was a specific group of hedgies who sold off their entire stakes in the third quarter. It’s worth mentioning that Greg Poole’s Echo Street Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $12.4 million in stock. Ron Bobman’s fund, Capital Returns Management, also sold off its stock, about $8.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Alleghany Corporation (NYSE:Y) but similarly valued. These stocks are Global Payments Inc (NYSE:GPN), Sabre Corp (NASDAQ:SABR), News Corp (NASDAQ:NWS), and Leucadia National Corp. (NYSE:LUK). All of these stocks’ market caps are similar to Alleghany Corporation (NYSE:Y)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GPN | 27 | 549604 | 4 |
| SABR | 34 | 848653 | -1 |
| NWS | 15 | 402772 | -5 |
| LUK | 27 | 748075 | -3 |
As you can see, these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $865 million in Alleghany Corporation (NYSE:Y)’s case. Sabre Corp (NASDAQ:SABR) is the most popular stock in this table, whereas News Corp (NASDAQ:NWS) is the least popular one. Alleghany Corporation (NYSE:Y) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Sabre Corp (NASDAQ:SABR) might be a better candidate to consider a long position.
