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 Federal Agricultural Mortgage Corp. (NYSE:AGM).
Federal Agricultural Mortgage Corp. (NYSE:AGM) has seen an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that AGM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
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 gander at the key hedge fund action encompassing Federal Agricultural Mortgage Corp. (NYSE:AGM).
What have hedge funds been doing with Federal Agricultural Mortgage Corp. (NYSE:AGM)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AGM over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the largest position in Federal Agricultural Mortgage Corp. (NYSE:AGM), worth close to $20.8 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $3.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Federal Agricultural Mortgage Corp. (NYSE:AGM), around 0.02% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to AGM.
As aggregate interest increased, specific money managers were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, established the biggest position in Federal Agricultural Mortgage Corp. (NYSE:AGM). GLG Partners had $0.8 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.7 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks similar to Federal Agricultural Mortgage Corp. (NYSE:AGM). We will take a look at Solar Capital Ltd. (NASDAQ:SLRC), e.l.f. Beauty, Inc. (NYSE:ELF), NV5 Holdings Inc (NASDAQ:NVEE), and Amneal Pharmaceuticals, Inc. (NYSE:AMRX). All of these stocks’ market caps are similar to AGM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLRC | 13 | 52104 | 1 |
| ELF | 20 | 238245 | 2 |
| NVEE | 14 | 23017 | 2 |
| AMRX | 9 | 8377 | -1 |
| Average | 14 | 80436 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $33 million in AGM’s case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 9 bullish hedge fund positions. Federal Agricultural Mortgage Corp. (NYSE:AGM) 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 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. Unfortunately AGM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AGM investors were disappointed as the stock returned 1.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
