We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Argo Group International Holdings, Ltd. (NYSE:ARGO).
Argo Group International Holdings, Ltd. (NYSE:ARGO) has experienced an increase in enthusiasm from smart money recently. ARGO was in 19 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with ARGO holdings at the end of the previous quarter. Our calculations also showed that ARGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the fresh hedge fund action regarding Argo Group International Holdings, Ltd. (NYSE:ARGO).
What have hedge funds been doing with Argo Group International Holdings, Ltd. (NYSE:ARGO)?
At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the third quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in ARGO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Voce Capital held the most valuable stake in Argo Group International Holdings, Ltd. (NYSE:ARGO), which was worth $130.9 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $22.7 million worth of shares. AQR Capital Management, GAMCO Investors, and Gillson Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Voce Capital allocated the biggest weight to Argo Group International Holdings, Ltd. (NYSE:ARGO), around 76.75% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, earmarking 0.58 percent of its 13F equity portfolio to ARGO.
With a general bullishness amongst the heavyweights, key money managers have jumped into Argo Group International Holdings, Ltd. (NYSE:ARGO) headfirst. Gillson Capital, managed by Daniel Johnson, created the largest position in Argo Group International Holdings, Ltd. (NYSE:ARGO). Gillson Capital had $3.9 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $3.2 million position during the quarter. The other funds with brand new ARGO positions are Dmitry Balyasny’s Balyasny Asset Management, Mika Toikka’s AlphaCrest Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Argo Group International Holdings, Ltd. (NYSE:ARGO). We will take a look at Acadia Realty Trust (NYSE:AKR), Kinsale Capital Group, Inc. (NASDAQ:KNSL), Plexus Corp. (NASDAQ:PLXS), and SPX Corporation (NYSE:SPXC). This group of stocks’ market values resemble ARGO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AKR | 13 | 81788 | -3 |
| KNSL | 11 | 24521 | -1 |
| PLXS | 24 | 119833 | 16 |
| SPXC | 19 | 121935 | 0 |
| Average | 16.75 | 87019 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $185 million in ARGO’s case. Plexus Corp. (NASDAQ:PLXS) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 11 bullish hedge fund positions. Argo Group International Holdings, Ltd. (NYSE:ARGO) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ARGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ARGO were disappointed as the stock returned -46.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
