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Did Hedge Funds Make The Right Call On Axis Capital Holdings Limited (AXS) ?

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 Axis Capital Holdings Limited (NYSE:AXS) and determine whether hedge funds had an edge regarding this stock.

Is Axis Capital Holdings Limited (NYSE:AXS) a marvelous stock to buy now? The best stock pickers were reducing their bets on the stock. The number of bullish hedge fund positions dropped by 2 recently. Our calculations also showed that AXS 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). AXS was in 32 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with AXS positions at the end of the previous quarter.

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

If you’d ask most market participants, hedge funds are seen as slow, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open today, We hone in on the upper echelon of this club, approximately 850 funds. It is estimated that this group of investors manage most of all hedge funds’ total asset base, and by tracking their first-class picks, Insider Monkey has formulated several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually 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 .

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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. 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 we are checking out this tiny lithium stock. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing Axis Capital Holdings Limited (NYSE:AXS).

What does smart money think about Axis Capital Holdings Limited (NYSE:AXS)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in AXS a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Pzena Investment Management was the largest shareholder of Axis Capital Holdings Limited (NYSE:AXS), with a stake worth $197.8 million reported as of the end of September. Trailing Pzena Investment Management was Renaissance Technologies, which amassed a stake valued at $104.1 million. Samlyn Capital, Paradice Investment Management, and AQR Capital Management 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 Paradice Investment Management allocated the biggest weight to Axis Capital Holdings Limited (NYSE:AXS), around 6.83% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, dishing out 3.01 percent of its 13F equity portfolio to AXS.

Judging by the fact that Axis Capital Holdings Limited (NYSE:AXS) has faced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers that decided to sell off their full holdings last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $39.5 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund cut about $26.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Axis Capital Holdings Limited (NYSE:AXS) but similarly valued. We will take a look at Cyberark Software Ltd (NASDAQ:CYBR), New Jersey Resources Corp (NYSE:NJR), Gerdau SA (NYSE:GGB), and National Fuel Gas Company (NYSE:NFG). This group of stocks’ market values are similar to AXS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CYBR 14 133983 -6
NJR 14 36464 -6
GGB 12 88520 5
NFG 18 104176 -8
Average 14.5 90786 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $594 million in AXS’s case. National Fuel Gas Company (NYSE:NFG) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Axis Capital Holdings Limited (NYSE:AXS) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately AXS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AXS were disappointed as the stock returned 6% 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 in 2020.

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