“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Federal Agricultural Mortgage Corp. (NYSE:AGM) a buy right now? The smart money is taking a bullish view. The number of bullish hedge fund positions moved up by 2 recently. Our calculations also showed that AGM isn’t among the 30 most popular stocks among hedge funds. AGM was in 9 hedge funds’ portfolios at the end of December. There were 7 hedge funds in our database with AGM positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s review the latest hedge fund action regarding Federal Agricultural Mortgage Corp. (NYSE:AGM).
Hedge fund activity in Federal Agricultural Mortgage Corp. (NYSE:AGM)
Heading into the first quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the second quarter of 2018. By comparison, 7 hedge funds held shares or bullish call options in AGM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Federal Agricultural Mortgage Corp. (NYSE:AGM), which was worth $15.4 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $1.8 million worth of shares. Moreover, Millennium Management, Blue Mountain Capital, and D E Shaw were also bullish on Federal Agricultural Mortgage Corp. (NYSE:AGM), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, some big names were breaking ground themselves. D E Shaw, managed by D. E. Shaw, initiated the biggest position in Federal Agricultural Mortgage Corp. (NYSE:AGM). D E Shaw had $0.4 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0 million position during the quarter.
Let’s go over hedge fund activity in other stocks similar to Federal Agricultural Mortgage Corp. (NYSE:AGM). We will take a look at Twist Bioscience Corporation (NASDAQ:TWST), X Financial (NYSE:XYF), Century Aluminum Co (NASDAQ:CENX), and Green Bancorp Inc (NASDAQ:GNBC). This group of stocks’ market valuations are closest to AGM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWST | 4 | 20101 | 4 |
| XYF | 2 | 3230 | -2 |
| CENX | 11 | 40938 | 0 |
| GNBC | 7 | 27373 | -4 |
| Average | 6 | 22911 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $20 million in AGM’s case. Century Aluminum Co (NASDAQ:CENX) is the most popular stock in this table. On the other hand X Financial (NYSE:XYF) is the least popular one with only 2 bullish hedge fund positions. Federal Agricultural Mortgage Corp. (NYSE:AGM) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on AGM, though not to the same extent, as the stock returned 23.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
