Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Axis Capital Holdings Limited (NYSE:AXS) to find out whether it was one of their high conviction long-term ideas.
Axis Capital Holdings Limited (NYSE:AXS) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that axs isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to review the new hedge fund action surrounding Axis Capital Holdings Limited (NYSE:AXS).
How have hedgies been trading Axis Capital Holdings Limited (NYSE:AXS)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AXS over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of Axis Capital Holdings Limited (NYSE:AXS), with a stake worth $395.4 million reported as of the end of September. Trailing Pzena Investment Management was Renaissance Technologies, which amassed a stake valued at $54.5 million. Gillson Capital, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Axis Capital Holdings Limited (NYSE:AXS) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few funds who were dropping their entire stakes heading into Q3. It’s worth mentioning that Glenn Russell Dubin’s Highbridge Capital Management said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, worth about $3.8 million in stock. Joe DiMenna’s fund, ZWEIG DIMENNA PARTNERS, also sold off its stock, about $3.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Axis Capital Holdings Limited (NYSE:AXS) but similarly valued. These stocks are InterXion Holding NV (NYSE:INXN), MGIC Investment Corporation (NYSE:MTG), National Fuel Gas Company (NYSE:NFG), and Whiting Petroleum Corporation (NYSE:WLL). This group of stocks’ market caps are similar to AXS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INXN | 31 | 803781 | -4 |
| MTG | 30 | 430113 | 5 |
| NFG | 16 | 227303 | -1 |
| WLL | 39 | 906986 | 7 |
| Average | 29 | 592046 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $597 million in AXS’s case. Whiting Petroleum Corporation (NYSE:WLL) is the most popular stock in this table. On the other hand National Fuel Gas Company (NYSE:NFG) is the least popular one with only 16 bullish hedge fund positions. Axis Capital Holdings Limited (NYSE:AXS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WLL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
