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Arthur J. Gallagher & Co. (AJG): Hedge Fund Interest Inching Up

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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Arthur J. Gallagher & Co. (NYSE:AJG) and determine whether the smart money was really smart about this stock.

Arthur J. Gallagher & Co. (NYSE:AJG) has seen an increase in enthusiasm from smart money recently. Arthur J. Gallagher & Co. (NYSE:AJG) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. There were 28 hedge funds in our database with AJG holdings at the end of March. Our calculations also showed that AJG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to go over the latest hedge fund action regarding Arthur J. Gallagher & Co. (NYSE:AJG).

How have hedgies been trading Arthur J. Gallagher & Co. (NYSE:AJG)?

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in AJG a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Adage Capital Management was the largest shareholder of Arthur J. Gallagher & Co. (NYSE:AJG), with a stake worth $66.4 million reported as of the end of September. Trailing Adage Capital Management was Echo Street Capital Management, which amassed a stake valued at $33.6 million. Millennium Management, Prospector Partners, and Renaissance Technologies 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 Prospector Partners allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 3.21% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, designating 1.79 percent of its 13F equity portfolio to AJG.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Running Oak Capital, managed by Seth Cogswell, established the most outsized position in Arthur J. Gallagher & Co. (NYSE:AJG). Running Oak Capital had $4.5 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $2.5 million investment in the stock during the quarter. The other funds with new positions in the stock are John Brennan’s Sirios Capital Management, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arthur J. Gallagher & Co. (NYSE:AJG) but similarly valued. We will take a look at Ameriprise Financial, Inc. (NYSE:AMP), MPLX LP (NYSE:MPLX), Nutrien Ltd. (NYSE:NTR), Citrix Systems, Inc. (NASDAQ:CTXS), First Republic Bank (NYSE:FRC), Paycom Software Inc (NYSE:PAYC), and Yum China Holdings, Inc. (NYSE:YUMC). All of these stocks’ market caps are similar to AJG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMP 28 707002 2
MPLX 13 179753 2
NTR 22 490722 0
CTXS 36 1146265 -2
FRC 37 1192635 9
PAYC 36 503943 6
YUMC 35 839761 11
Average 29.6 722869 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $235 million in AJG’s case. First Republic Bank (NYSE:FRC) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 13 bullish hedge fund positions. Arthur J. Gallagher & Co. (NYSE:AJG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AJG is 67.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately AJG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AJG investors were disappointed as the stock returned 5.7% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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