Should You Avoid American Financial Group (AFG)?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze American Financial Group (NYSE:AFG).

American Financial Group (NYSE:AFG) shareholders have witnessed a decrease in enthusiasm from smart money of late. 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 W.P. Carey Inc. REIT (NYSE:WPC), Toll Brothers Inc (NYSE:TOL), and Cadence Design Systems Inc (NASDAQ:CDNS) to gather more data points.

To most stock holders, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are more than 8000 funds in operation at the moment, We look at the top tier of this club, about 700 funds. Most estimates calculate that this group of people orchestrates the majority of all hedge funds’ total asset base, and by tracking their top picks, Insider Monkey has uncovered several investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, we’re going to take a glance at the latest action regarding American Financial Group (NYSE:AFG).

What have hedge funds been doing with American Financial Group (NYSE:AFG)?

At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decrease of 10% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’ AQR Capital Management has the number one position in American Financial Group (NYSE:AFG), worth close to $68.1 million, comprising 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Citadel Investment Group, managed by Ken Griffin, which holds a $38 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. The remaining members of the smart money that hold long positions contain Israel Englander’s Millennium Management, Chuck Royce’s Royce & Associates, and Matthew Tewksbury’s Stevens Capital Management.

Due to the fact that American Financial Group (NYSE:AFG) has experienced a falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds who were dropping their full holdings in the third quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the biggest investment of the 700 funds followed by Insider Monkey, totaling close to $1.8 million in stock. Millennium Management Subsidiary’s fund, Blue Arrow Capital Management, also cut its stock, about $1.8 million worth of shares. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as American Financial Group (NYSE:AFG) but similarly valued. We will take a look at W.P. Carey Inc. REIT (NYSE:WPC), Toll Brothers Inc (NYSE:TOL), Cadence Design Systems Inc (NASDAQ:CDNS), and The Middleby Corporation (NASDAQ:MIDD). This group of stocks’ market values resembles American Financial Group (NYSE:AFG)’s market value.

As you can see, these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $701 million. That figure was $139 million in American Financial Group (NYSE:AFG)’s case. Toll Brothers Inc (NYSE:TOL) is the most popular stock in this table. On the other hand, W.P. Carey Inc. REIT (NYSE:WPC) is the least popular one with only 11 bullish hedge fund positions. American Financial Group (NYSE:AFG) 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. In this regard, Toll Brothers Inc (NYSE:TOL) might be a better candidate to consider a long position.