Arch Capital Group Ltd. (ACGL): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is Arch Capital Group Ltd. (NASDAQ:ACGL) going to take off soon? Prominent investors are buying. The number of bullish hedge fund bets improved by 1 lately.

Arch Capital Group Ltd. (NASDAQ:ACGL)To most shareholders, hedge funds are assumed to be worthless, outdated investment tools of the past. While there are greater than 8000 funds with their doors open today, we hone in on the masters of this group, about 450 funds. Most estimates calculate that this group has its hands on the lion’s share of all hedge funds’ total capital, and by watching their highest performing picks, we have found a few investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outpaced 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 trumped the S&P 500 index by 24 percentage points in 7 months (see the details here).

Equally as beneficial, bullish insider trading sentiment is another way to parse down the investments you’re interested in. Obviously, there are plenty of incentives for an insider to sell shares of his or her company, but just one, very clear reason why they would buy. Various academic studies have demonstrated the market-beating potential of this method if investors understand where to look (learn more here).

Consequently, let’s take a look at the latest action encompassing Arch Capital Group Ltd. (NASDAQ:ACGL).

What have hedge funds been doing with Arch Capital Group Ltd. (NASDAQ:ACGL)?

In preparation for this year, a total of 10 of the hedge funds we track were bullish in this stock, a change of 11% from the third quarter. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially.

Of the funds we track, Steadfast Capital Management, managed by Robert Pitts, holds the biggest position in Arch Capital Group Ltd. (NASDAQ:ACGL). Steadfast Capital Management has a $59.3 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which held a $40 million position; 1.9% of its 13F portfolio is allocated to the company. Other peers that hold long positions include Martin Whitman’s Third Avenue Management, Crispin Odey’s Odey Asset Management Group and D. E. Shaw’s D E Shaw.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, established the largest position in Arch Capital Group Ltd. (NASDAQ:ACGL). D E Shaw had 1.3 million invested in the company at the end of the quarter. Steven Cohen’s SAC Capital Advisors also initiated a $0.4 million position during the quarter. The other funds with brand new ACGL positions are Mike Vranos’s Ellington and Ken Griffin’s Citadel Investment Group.

Insider trading activity in Arch Capital Group Ltd. (NASDAQ:ACGL)

Insider purchases made by high-level executives is most useful when the primary stock in question has experienced transactions within the past half-year. Over the latest 180-day time period, Arch Capital Group Ltd. (NASDAQ:ACGL) has experienced zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Arch Capital Group Ltd. (NASDAQ:ACGL). These stocks are Cna Financial Corp (NYSE:CNA), W.R. Berkley Corporation (NYSE:WRB), Everest Re Group Ltd (NYSE:RE), Cincinnati Financial Corporation (NASDAQ:CINF), and Alleghany Corporation (NYSE:Y). This group of stocks are in the property & casualty insurance industry and their market caps are similar to ACGL’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Cna Financial Corp (NYSE:CNA) 14 0 2
W.R. Berkley Corporation (NYSE:WRB) 17 1 2
Everest Re Group Ltd (NYSE:RE) 18 0 2
Cincinnati Financial Corporation (NASDAQ:CINF) 15 1 0
Alleghany Corporation (NYSE:Y) 26 0 1

With the returns shown by our research, retail investors should always pay attention to hedge fund and insider trading activity, and Arch Capital Group Ltd. (NASDAQ:ACGL) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds

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