Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Assured Guaranty Ltd. (NYSE:AGO).
Assured Guaranty Ltd. (NYSE:AGO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds’ portfolios at the end of December. At the end of this article we will also compare AGO to other stocks including Williams-Sonoma, Inc. (NYSE:WSM), CIT Group Inc. (NYSE:CIT), and Amneal Pharmaceuticals, Inc. (NYSE:AMRX) to get a better sense of its popularity.
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.
We’re going to take a glance at the new hedge fund action regarding Assured Guaranty Ltd. (NYSE:AGO).
How are hedge funds trading Assured Guaranty Ltd. (NYSE:AGO)?
At Q4’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. By comparison, 28 hedge funds held shares or bullish call options in AGO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Assured Guaranty Ltd. (NYSE:AGO), with a stake worth $126.8 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $76.8 million. Kahn Brothers, Aurelius Capital Management, and Taconic Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Assured Guaranty Ltd. (NYSE:AGO) has faced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of hedge funds who sold off their positions entirely heading into Q3. Intriguingly, Debra Fine’s Fine Capital Partners said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $13.2 million in stock. Mitch Cantor’s fund, Mountain Lake Investment Management, also cut its stock, about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Assured Guaranty Ltd. (NYSE:AGO). These stocks are Williams-Sonoma, Inc. (NYSE:WSM), CIT Group Inc. (NYSE:CIT), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), and Kirby Corporation (NYSE:KEX). This group of stocks’ market values are closest to AGO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSM | 17 | 284244 | -6 |
| CIT | 26 | 600235 | 1 |
| AMRX | 8 | 75987 | -3 |
| KEX | 16 | 409084 | 0 |
| Average | 16.75 | 342388 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $571 million in AGO’s case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Assured Guaranty Ltd. (NYSE:AGO) is more popular among hedge funds. 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 AGO, though not to the same extent, as the stock returned 21.3% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
