Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Argo Group International Holdings, Ltd. (NYSE:ARGO).
Argo Group International Holdings, Ltd. (NYSE:ARGO) investors should be aware of an increase in hedge fund interest lately. ARGO was in 19 hedge funds’ portfolios at the end of the second quarter of 2019. There were 17 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 (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Today there are many metrics investors have at their disposal to grade their holdings. A pair of the most under-the-radar metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can beat their index-focused peers by a significant amount (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the key hedge fund action encompassing Argo Group International Holdings, Ltd. (NYSE:ARGO).
How are hedge funds trading Argo Group International Holdings, Ltd. (NYSE:ARGO)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in ARGO a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Voce Capital was the largest shareholder of Argo Group International Holdings, Ltd. (NYSE:ARGO), with a stake worth $138.5 million reported as of the end of March. Trailing Voce Capital was Pzena Investment Management, which amassed a stake valued at $20.4 million. AQR Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the largest position in Argo Group International Holdings, Ltd. (NYSE:ARGO). Two Sigma Advisors had $1.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Steve Cohen’s Point72 Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks similar to Argo Group International Holdings, Ltd. (NYSE:ARGO). We will take a look at Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), The Geo Group, Inc. (NYSE:GEO), Agree Realty Corporation (NYSE:ADC), and SeaWorld Entertainment Inc (NYSE:SEAS). This group of stocks’ market values are similar to ARGO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARWR | 16 | 240028 | 0 |
| GEO | 20 | 112073 | 2 |
| ADC | 11 | 97389 | 3 |
| SEAS | 32 | 1206789 | 5 |
| Average | 19.75 | 414070 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $219 million in ARGO’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 11 bullish hedge fund positions. Argo Group International Holdings, Ltd. (NYSE:ARGO) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ARGO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARGO investors were disappointed as the stock returned -4.7% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
