American Financial Group (AFG): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

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American Financial Group (NYSE:AFG)American Financial Group (NYSE:AFG) has experienced an increase in hedge fund interest recently.

If you’d ask most market participants, hedge funds are seen as worthless, old investment tools of years past. While there are greater than 8000 funds with their doors open at the moment, we choose to focus on the aristocrats of this club, about 450 funds. It is estimated that this group has its hands on most of the smart money’s total asset base, and by monitoring their highest performing picks, we have unearthed a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).

Just as integral, positive insider trading sentiment is a second way to parse down the marketplace. Obviously, there are a variety of incentives for an executive to downsize shares of his or her company, but just one, very simple reason why they would initiate a purchase. Many academic studies have demonstrated the useful potential of this tactic if you know what to do (learn more here).

Keeping this in mind, it’s important to take a peek at the latest action encompassing American Financial Group (NYSE:AFG).

Hedge fund activity in American Financial Group (NYSE:AFG)

At the end of the fourth quarter, a total of 10 of the hedge funds we track were bullish in this stock, a change of 25% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably.

According to our comprehensive database, Citadel Investment Group, managed by Ken Griffin, holds the largest position in American Financial Group (NYSE:AFG). Citadel Investment Group has a $62.5 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which held a $36.7 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers with similar optimism include SAC Subsidiary’s CR Intrinsic Investors, Israel Englander’s Millennium Management and Steven Cohen’s SAC Capital Advisors.

Now, key money managers were breaking ground themselves. CR Intrinsic Investors, managed by SAC Subsidiary, created the biggest position in American Financial Group (NYSE:AFG). CR Intrinsic Investors had 9.7 million invested in the company at the end of the quarter. Steven Cohen’s SAC Capital Advisors also made a $5.4 million investment in the stock during the quarter. The only other fund with a brand new AFG position is Gregory Fraser, Rudolph Kluiber, and Timothy Kroch’s GRT Capital Partners.

Insider trading activity in American Financial Group (NYSE:AFG)

Insider trading activity, especially when it’s bullish, is at its handiest when the company in question has experienced transactions within the past half-year. Over the latest 180-day time period, American Financial Group (NYSE:AFG) has seen zero unique insiders purchasing, and 10 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to American Financial Group (NYSE:AFG). These stocks are White Mountains Insurance Group Ltd (NYSE:WTM), Markel Corporation (NYSE:MKL), RenaissanceRe Holdings Ltd. (NYSE:RNR), Validus Holdings, Ltd. (NYSE:VR), and HCC Insurance Holdings, Inc. (NYSE:HCC). This group of stocks belong to the property & casualty insurance industry and their market caps are closest to AFG’s market cap.

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