We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Assured Guaranty Ltd. (NYSE:AGO).
Is Assured Guaranty Ltd. (NYSE:AGO) going to take off soon? Hedge funds are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 5 recently. Our calculations also showed that AGO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Frank Brosens of Taconic Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the recent hedge fund action surrounding Assured Guaranty Ltd. (NYSE:AGO).
What does smart money think about Assured Guaranty Ltd. (NYSE:AGO)?
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in AGO a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Assured Guaranty Ltd. (NYSE:AGO) was held by AQR Capital Management, which reported holding $189 million worth of stock at the end of September. It was followed by GLG Partners with a $78.3 million position. Other investors bullish on the company included Kahn Brothers, Arrowstreet Capital, and Taconic Capital. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Assured Guaranty Ltd. (NYSE:AGO), around 9.07% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, earmarking 6.56 percent of its 13F equity portfolio to AGO.
Seeing as Assured Guaranty Ltd. (NYSE:AGO) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that slashed their entire stakes last quarter. Interestingly, Mark Brodsky’s Aurelius Capital Management cut the largest position of the 750 funds tracked by Insider Monkey, comprising about $27.9 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $6.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Assured Guaranty Ltd. (NYSE:AGO). We will take a look at W.R. Grace & Co. (NYSE:GRA), Littelfuse, Inc. (NASDAQ:LFUS), Beyond Meat, Inc. (NASDAQ:BYND), and Ritchie Bros. Auctioneers (NYSE:RBA). This group of stocks’ market values match AGO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRA | 46 | 1719576 | 3 |
| LFUS | 21 | 300976 | 3 |
| BYND | 19 | 69052 | 2 |
| RBA | 21 | 259769 | 7 |
| Average | 26.75 | 587343 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $587 million. That figure was $587 million in AGO’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Beyond Meat, Inc. (NASDAQ:BYND) is the least popular one with only 19 bullish hedge fund positions. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AGO were disappointed as the stock returned -46.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
