Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Arthur J. Gallagher & Co. (NYSE:AJG).
Is Arthur J. Gallagher & Co. (NYSE:AJG) a buy here? The best stock pickers are in a bullish mood. The number of long hedge fund bets went up by 4 in recent months. Our calculations also showed that AJG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). AJG was in 31 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with AJG holdings at the end of the previous quarter.
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.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a look at the latest hedge fund action surrounding Arthur J. Gallagher & Co. (NYSE:AJG).
How have hedgies been trading Arthur J. Gallagher & Co. (NYSE:AJG)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AJG over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Arthur J. Gallagher & Co. (NYSE:AJG) was held by Balyasny Asset Management, which reported holding $112.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $69.6 million position. Other investors bullish on the company included Citadel Investment Group, Echo Street Capital Management, and Prana Capital Management. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 8.16% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, dishing out 3.49 percent of its 13F equity portfolio to AJG.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, established the biggest position in Arthur J. Gallagher & Co. (NYSE:AJG). Bridgewater Associates had $3.7 million invested in the company at the end of the quarter. Qing Li’s Sciencast Management also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new AJG investors: Bruce Kovner’s Caxton Associates LP, Philippe Laffont’s Coatue Management, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks similar to Arthur J. Gallagher & Co. (NYSE:AJG). We will take a look at ArcelorMittal (NYSE:MT), Lennar Corporation (NYSE:LEN), Wausau Paper Corp. (NYSE:WPP), and Citizens Financial Group Inc (NYSE:CFG). This group of stocks’ market values resemble AJG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MT | 17 | 353286 | 3 |
| LEN | 63 | 1861573 | 4 |
| WPP | 7 | 49982 | 4 |
| CFG | 42 | 1814103 | -1 |
| Average | 32.25 | 1019736 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1020 million. That figure was $395 million in AJG’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Wausau Paper Corp. (NYSE:WPP) is the least popular one with only 7 bullish hedge fund positions. Arthur J. Gallagher & Co. (NYSE:AJG) is not the least popular stock in this group but hedge fund interest is still below average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on AJG as the stock returned -15.8% during the same time period and outperformed the market by an even larger margin.
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.
