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Did Hedge Funds Make The Right Call On Arch Capital Group Ltd. (ACGL)?

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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Arch Capital Group Ltd. (NASDAQ:ACGL) and determine whether the smart money was really smart about this stock.

Arch Capital Group Ltd. (NASDAQ:ACGL) has seen an increase in hedge fund interest recently. ACGL was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. There were 23 hedge funds in our database with ACGL holdings at the end of the previous quarter. Our calculations also showed that ACGL 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 the eyes of most shareholders, hedge funds are perceived as slow, old financial tools of years past. While there are over 8000 funds trading at the moment, Our experts choose to focus on the upper echelon of this group, around 850 funds. It is estimated that this group of investors preside over most of all hedge funds’ total capital, and by keeping an eye on their finest picks, Insider Monkey has identified many investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Andrew Raab FPR Partners Andy Raab

Andrew Raab of FPR Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action regarding Arch Capital Group Ltd. (NASDAQ:ACGL).

How have hedgies been trading Arch Capital Group Ltd. (NASDAQ:ACGL)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the fourth quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in ACGL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, FPR Partners, managed by Bob Peck and Andy Raab, holds the biggest position in Arch Capital Group Ltd. (NASDAQ:ACGL). FPR Partners has a $307.2 million position in the stock, comprising 12.6% of its 13F portfolio. On FPR Partners’s heels is Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, which holds a $166.9 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish encompass Renaissance Technologies, Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position FPR Partners allocated the biggest weight to Arch Capital Group Ltd. (NASDAQ:ACGL), around 12.63% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, setting aside 2.69 percent of its 13F equity portfolio to ACGL.

Now, key hedge funds were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, established the biggest position in Arch Capital Group Ltd. (NASDAQ:ACGL). Echo Street Capital Management had $14.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new ACGL investors: Anthony Bozza’s Lakewood Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Brett Huckelbridge’s Steel Canyon Capital.

Let’s also examine hedge fund activity in other stocks similar to Arch Capital Group Ltd. (NASDAQ:ACGL). These stocks are LINE Corporation (NYSE:LN), Credicorp Ltd. (NYSE:BAP), Waters Corporation (NYSE:WAT), and Teladoc Health, Inc (NYSE:TDOC). This group of stocks’ market caps are similar to ACGL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LN 7 59060 -6
BAP 22 193610 0
WAT 25 337327 -2
TDOC 36 532644 13
Average 22.5 280660 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $734 million in ACGL’s case. Teladoc Health, Inc (NYSE:TDOC) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 7 bullish hedge fund positions. Arch Capital Group Ltd. (NASDAQ:ACGL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ACGL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ACGL were disappointed as the stock returned 0.7% during the same time period 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 many of these stocks already outperformed the market so far this year.

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