The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Arch Capital Group Ltd. (NASDAQ:ACGL) from the perspective of those elite funds.
Arch Capital Group Ltd. (NASDAQ:ACGL) shareholders have witnessed an increase in enthusiasm from smart money recently. ACGL was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 16 hedge funds in our database with ACGL holdings at the end of the previous quarter. Our calculations also showed that ACGL isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a look at the key hedge fund action encompassing Arch Capital Group Ltd. (NASDAQ:ACGL).
What have hedge funds been doing with Arch Capital Group Ltd. (NASDAQ:ACGL)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACGL over the last 13 quarters. With hedge funds’ capital changing hands, there exists a select group of notable 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 $522.6 million at the end of the third quarter. On the second spot was Polar Capital which amassed $237.4 million worth of shares. Moreover, Renaissance Technologies, Marshall Wace LLP, and Two Sigma Advisors were also bullish on Arch Capital Group Ltd. (NASDAQ:ACGL), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers were leading the bulls’ herd. Blue Mountain Capital, managed by Andrew Feldstein and Stephen Siderow, created the most outsized position in Arch Capital Group Ltd. (NASDAQ:ACGL). Blue Mountain Capital had $3.5 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $2.4 million position during the quarter. The other funds with brand new ACGL positions are Alec Litowitz and Ross Laser’s Magnetar Capital, David Andre and Astro Teller’s Cerebellum Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks similar to Arch Capital Group Ltd. (NASDAQ:ACGL). We will take a look at AXA Equitable Holdings, Inc. (NYSE:EQH), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), Copart, Inc. (NASDAQ:CPRT), and InterContinental Hotels Group PLC (NYSE:IHG). All of these stocks’ market caps are closest to ACGL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EQH | 21 | 763476 | 2 |
| SQM | 9 | 70961 | -6 |
| CPRT | 31 | 248204 | 3 |
| IHG | 3 | 21513 | -2 |
| Average | 16 | 276039 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $1.12 billion in ACGL’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 3 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CPRT might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
