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Did Hedge Funds Make The Right Call On Alleghany Corporation (Y)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Alleghany Corporation (NYSE:Y) and determine whether hedge funds had an edge regarding this stock.

Alleghany Corporation (NYSE:Y) investors should be aware of an increase in hedge fund sentiment lately. Y was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with Y positions at the end of the previous quarter. Our calculations also showed that Y isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In today’s marketplace there are a multitude of metrics shareholders use to value their holdings. A duo of the less utilized metrics are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can trounce the market by a significant amount (see the details here).

Alex Litowitz Magnetar Capital

Alec Litowitz of Magnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing Alleghany Corporation (NYSE:Y).

How have hedgies been trading Alleghany Corporation (NYSE:Y)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in Y a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Alleghany Corporation (NYSE:Y) was held by Polar Capital, which reported holding $73.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $58.5 million position. Other investors bullish on the company included Royce & Associates, Gillson Capital, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Gillson Capital allocated the biggest weight to Alleghany Corporation (NYSE:Y), around 3.51% of its 13F portfolio. Spindletop Capital is also relatively very bullish on the stock, designating 2.76 percent of its 13F equity portfolio to Y.

As aggregate interest increased, key money managers were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, created the most valuable position in Alleghany Corporation (NYSE:Y). Echo Street Capital Management had $3 million invested in the company at the end of the quarter. David E. Winebrenner’s Spindletop Capital also initiated a $2 million position during the quarter. The other funds with brand new Y positions are Gregg Moskowitz’s Interval Partners, Alec Litowitz and Ross Laser’s Magnetar Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alleghany Corporation (NYSE:Y) but similarly valued. These stocks are Pool Corporation (NASDAQ:POOL), Camden Property Trust (NYSE:CPT), Expedia Group Inc (NASDAQ:EXPE), and Crown Holdings, Inc. (NYSE:CCK). All of these stocks’ market caps resemble Y’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POOL 33 362202 5
CPT 32 361736 1
EXPE 41 1550595 -18
CCK 56 1217305 -2
Average 40.5 872960 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $873 million. That figure was $269 million in Y’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Alleghany Corporation (NYSE:Y) is even less popular than CPT. Hedge funds dodged a bullet by taking a bearish stance towards Y. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately Y wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); Y investors were disappointed as the stock returned -11.4% during the second quarter 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 so far in 2020.

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