Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Argo Group International Holdings, Ltd. (NYSE:ARGO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of the fourth quarter of 2018. 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 International Bancshares Corp (NASDAQ:IBOC), Navient Corp (NASDAQ:NAVI), and John Bean Technologies Corporation (NYSE:JBT) to gather more data points.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a peek at the latest hedge fund action encompassing Argo Group International Holdings, Ltd. (NYSE:ARGO).
What have hedge funds been doing with Argo Group International Holdings, Ltd. (NYSE:ARGO)?
At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. By comparison, 8 hedge funds held shares or bullish call options in ARGO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Voce Capital, managed by J. Daniel Plants, holds the number one position in Argo Group International Holdings, Ltd. (NYSE:ARGO). Voce Capital has a $102.8 million position in the stock, comprising 71.2% of its 13F portfolio. Coming in second is Pzena Investment Management, led by Richard S. Pzena, holding a $32.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Cliff Asness’s AQR Capital Management, Mario Gabelli’s GAMCO Investors and D. E. Shaw’s D E Shaw.
Due to the fact that Argo Group International Holdings, Ltd. (NYSE:ARGO) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of funds who sold off their full holdings last quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising about $0.7 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund sold off about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Argo Group International Holdings, Ltd. (NYSE:ARGO). We will take a look at International Bancshares Corp (NASDAQ:IBOC), Navient Corp (NASDAQ:NAVI), John Bean Technologies Corporation (NYSE:JBT), and Acadia Healthcare Company Inc (NASDAQ:ACHC). This group of stocks’ market valuations are similar to ARGO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBOC | 19 | 132694 | 3 |
| NAVI | 29 | 398940 | 2 |
| JBT | 9 | 59938 | -4 |
| ACHC | 18 | 309481 | -1 |
| Average | 18.75 | 225263 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $164 million in ARGO’s case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand John Bean Technologies Corporation (NYSE:JBT) is the least popular one with only 9 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ARGO wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); ARGO investors were disappointed as the stock returned 9.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
