Were Hedge Funds Illusioned With Arch Capital Group Ltd. (ACGL)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. Hedge funds’ consensus stock picks performed spectacularly over the last 3 years, but 2022 hasn’t been kind to hedge funds. In this article we look at how hedge funds traded Arch Capital Group Ltd. (NASDAQ:ACGL) and determine whether the smart money was really smart about this stock.

Arch Capital Group Ltd. (NASDAQ:ACGL) investors should be aware of an increase in enthusiasm from smart money recently. 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. There were 22 hedge funds in our database with ACGL positions at the end of the second quarter. 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. With all of this in mind let’s review the key hedge fund action surrounding Arch Capital Group Ltd. (NASDAQ:ACGL).

Donald Sussman of Paloma Partners

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

At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards ACGL over the last 25 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

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, setting aside 9.24 percent of its 13F equity portfolio to ACGL.

Now, some big names were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, established 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 made a $3.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Jinghua Yan’s TwinBeech Capital, Peter Seuss’s Prana Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Arch Capital Group Ltd. (NASDAQ:ACGL) but similarly valued. These stocks are 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 match 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. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on ACGL as the stock returned 21.3% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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