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 (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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Axis Capital Holdings Limited (NYSE:AXS).
Is Axis Capital Holdings Limited (NYSE:AXS) an attractive investment right now? The smart money is becoming more confident. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that AXS 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).
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 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 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.
John Overdeck of Two Sigma Advisors
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 we’re going to go over the new hedge fund action regarding Axis Capital Holdings Limited (NYSE:AXS).
How have hedgies been trading Axis Capital Holdings Limited (NYSE:AXS)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in AXS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Axis Capital Holdings Limited (NYSE:AXS), which was worth $320 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $152 million worth of shares. Paradice Investment Management, Samlyn Capital, and AQR Capital Management 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 Paradice Investment Management allocated the biggest weight to Axis Capital Holdings Limited (NYSE:AXS), around 6.37% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, setting aside 5.87 percent of its 13F equity portfolio to AXS.
Now, some big names have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the largest position in Axis Capital Holdings Limited (NYSE:AXS). Two Sigma Advisors had $4.7 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $0.8 million investment in the stock during the quarter. The other funds with brand new AXS positions are Michael Gelband’s ExodusPoint Capital, Minhua Zhang’s Weld Capital Management, and Qing Li’s Sciencast Management.
Let’s now review hedge fund activity in other stocks similar to Axis Capital Holdings Limited (NYSE:AXS). These stocks are Portland General Electric Company (NYSE:POR), Cree, Inc. (NASDAQ:CREE), Pan American Silver Corp. (NASDAQ:PAAS), and LG Display Co Ltd. (NYSE:LPL). This group of stocks’ market values resemble AXS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| POR | 27 | 408157 | 0 |
| CREE | 25 | 283504 | 2 |
| PAAS | 30 | 447399 | 7 |
| LPL | 3 | 5937 | 0 |
| Average | 21.25 | 286249 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $286 million. That figure was $942 million in AXS’s case. Pan American Silver Corp. (NASDAQ:PAAS) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Axis Capital Holdings Limited (NYSE:AXS) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately AXS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AXS were disappointed as the stock returned -36.7% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.
