How Hedge Funds Feel About Assured Guaranty Ltd. (AGO)?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30th. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Assured Guaranty Ltd. (NYSE:AGO).

Assured Guaranty has experienced a decrease in hedge fund interest lately as the number of funds holding shares slid to 36 from 46. 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 Highwoods Properties Inc (NYSE:HIW), Urban Outfitters, Inc. (NASDAQ:URBN), and Sun Communities Inc (NYSE:SUI) to gather more data points.

To most stock holders, hedge funds are perceived as slow, outdated investment vehicles of the past. While there are more than 8000 funds trading at the moment, our researchers hone in on the bigwigs of this club, about 700 funds. These investment experts command most of all hedge funds’ total capital, and by observing their best investments, Insider Monkey has revealed several investment strategies that have historically outpaced the broader indices. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s take a look at the fresh action regarding Assured Guaranty Ltd. (NYSE:AGO).

What have hedge funds been doing with Assured Guaranty Ltd. (NYSE:AGO)?

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fine Capital Partners, managed by Debra Fine, holds the largest position in Assured Guaranty Ltd. (NYSE:AGO). Fine Capital Partners has a $120.6 million position in the stock, comprising 11.9% of its 13F portfolio. Fine Capital Partners also holds a $113 million call position. Some other hedge funds and institutional investors that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Anand Parekh’s Alyeska Investment Group and Ron Gutfleish’s Elm Ridge Capital.

Since Assured Guaranty Ltd. (NYSE:AGO) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few funds that decided to sell off their positions entirely last quarter. At the top of the heap, Scott Lawrence Swid’s SLS Management cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $9.6 million in stock, and Orlando Muyshondt of Tyrian Investments was right behind this move, as the fund said goodbye to about $8.9 million worth of shares. These moves are interesting, as total hedge fund interest was cut by 10 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Assured Guaranty Ltd. (NYSE:AGO) but similarly valued. These stocks are Highwoods Properties Inc (NYSE:HIW), Urban Outfitters, Inc. (NASDAQ:URBN), Sun Communities Inc (NYSE:SUI), and Solera Holdings Inc (NYSE:SLH). All of these stocks’ market caps resemble AGO’s market cap.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. This figure stands at $735 million in AGO’s case. Solera Holdings Inc (NYSE:SLH) is the most popular stock in this table with 38 long positions, while Sun Communities Inc (NYSE:SUI) is the least popular one. Assured Guaranty Ltd. (NYSE:AGO) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SLH might be a better candidate to consider a long position.