Hedge Funds Cautiously Watching Associated Capital Group, Inc. (AC)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Associated Capital Group, Inc. (NYSE:AC) based on that data.

Hedge fund interest in Associated Capital Group, Inc. (NYSE:AC) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), NextGen Healthcare, Inc. (NASDAQ:NXGN), and Partner Communications Company Ltd (NASDAQ:PTNR) to gather more data points. Our calculations also showed that AC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Leon Cooperman of Omega Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding Associated Capital Group, Inc. (NYSE:AC).

What have hedge funds been doing with Associated Capital Group, Inc. (NYSE:AC)?

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in AC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Associated Capital Group, Inc. (NYSE:AC) was held by Horizon Asset Management, which reported holding $44.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $5.8 million position. Other investors bullish on the company included GAMCO Investors, Renaissance Technologies, and Omega Advisors. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Associated Capital Group, Inc. (NYSE:AC), around 1.96% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to AC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Ancora Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).

Let’s check out hedge fund activity in other stocks similar to Associated Capital Group, Inc. (NYSE:AC). These stocks are Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), NextGen Healthcare, Inc. (NASDAQ:NXGN), Partner Communications Company Ltd (NASDAQ:PTNR), and General American Investors Company, Inc. (NYSE:GAM). This group of stocks’ market valuations are closest to AC’s market valuation.

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As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $54 million in AC’s case. NextGen Healthcare, Inc. (NASDAQ:NXGN) is the most popular stock in this table. On the other hand Partner Communications Company Ltd (NASDAQ:PTNR) is the least popular one with only 1 bullish hedge fund positions. Associated Capital Group, Inc. (NYSE:AC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately AC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AC investors were disappointed as the stock returned 16.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.