Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Affiliated Managers Group, Inc. (NYSE:AMG).
Hedge fund interest in Affiliated Managers Group, Inc. (NYSE:AMG) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Amedisys Inc (NASDAQ:AMED), Ryman Hospitality Properties, Inc. (NYSE:RHP), and Smartsheet Inc. (NYSE:SMAR) to gather more data points. Our calculations also showed that AMG 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.
Mason Hawkins of Southeastern Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the new hedge fund action surrounding Affiliated Managers Group, Inc. (NYSE:AMG).
Hedge fund activity in Affiliated Managers Group, Inc. (NYSE:AMG)
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AMG over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Southeastern Asset Management held the most valuable stake in Affiliated Managers Group, Inc. (NYSE:AMG), which was worth $126.9 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $92.8 million worth of shares. Renaissance Technologies, Ariel Investments, and Polar 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 Southeastern Asset Management allocated the biggest weight to Affiliated Managers Group, Inc. (NYSE:AMG), around 2.21% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, dishing out 1.4 percent of its 13F equity portfolio to AMG.
Because Affiliated Managers Group, Inc. (NYSE:AMG) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that slashed their full holdings last quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $19 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $2.6 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Affiliated Managers Group, Inc. (NYSE:AMG) but similarly valued. We will take a look at Amedisys Inc (NASDAQ:AMED), Ryman Hospitality Properties, Inc. (NYSE:RHP), Smartsheet Inc. (NYSE:SMAR), and Equity Commonwealth (NYSE:EQC). All of these stocks’ market caps are closest to AMG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMED | 21 | 197534 | -3 |
| RHP | 20 | 397632 | -1 |
| SMAR | 45 | 1213839 | -1 |
| EQC | 24 | 179039 | 4 |
| Average | 27.5 | 497011 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $497 million. That figure was $446 million in AMG’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand Ryman Hospitality Properties, Inc. (NYSE:RHP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Affiliated Managers Group, Inc. (NYSE:AMG) is even less popular than RHP. Hedge funds dodged a bullet by taking a bearish stance towards AMG. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AMG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AMG investors were disappointed as the stock returned 2.8% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
