Should I Buy Arch Capital Group Ltd. (ACGL)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Arch Capital Group Ltd. (NASDAQ:ACGL) in this article.

Arch Capital Group Ltd. (NASDAQ:ACGL) was in 31 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 41. ACGL has experienced an increase in support from the world’s most elite money managers in recent months. There were 22 hedge funds in our database with ACGL holdings at the end of June. Our calculations also showed that ACGL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the recent hedge fund action regarding Arch Capital Group Ltd. (NASDAQ:ACGL).

Andrew Raab of FPR Partners

Do Hedge Funds Think ACGL Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in ACGL a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, FPR Partners held the most valuable stake in Arch Capital Group Ltd. (NASDAQ:ACGL), which was worth $551.7 million at the end of the third quarter. On the second spot was Polar Capital which amassed $223.9 million worth of shares. Echo Street Capital Management, Iridian Asset Management, and King Street 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 FPR Partners allocated the biggest weight to Arch Capital Group Ltd. (NASDAQ:ACGL), around 14.64% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, dishing out 9.24 percent of its 13F equity portfolio to ACGL.

Now, key money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, created the largest position in Arch Capital Group Ltd. (NASDAQ:ACGL). Paloma Partners had $3.9 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $3.6 million position during the quarter. The following funds were also among the new ACGL investors: Jinghua Yan’s TwinBeech Capital, Peter Seuss’s Prana Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arch Capital Group Ltd. (NASDAQ:ACGL) but similarly valued. We will take a look at Smith & Nephew plc (NYSE:SNN), Avalara, Inc. (NYSE:AVLR), Elanco Animal Health Incorporated (NYSE:ELAN), Check Point Software Technologies Ltd. (NASDAQ:CHKP), Doximity Inc. (NYSE:DOCS), Franklin Resources, Inc. (NYSE:BEN), and Masimo Corporation (NASDAQ:MASI). This group of stocks’ market values are closest to ACGL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $1215 million in ACGL’s case. Elanco Animal Health Incorporated (NYSE:ELAN) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 19 bullish hedge fund positions. Arch Capital Group Ltd. (NASDAQ:ACGL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ACGL is 78.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately ACGL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ACGL were disappointed as the stock returned 5.8% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.