Hedge Funds Are Crazy About Arthur J. Gallagher & Co. (AJG)

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Arthur J. Gallagher & Co. (NYSE:AJG) in this article.

Is Arthur J. Gallagher & Co. (NYSE:AJG) a cheap investment today? The smart money was taking a bullish view. The number of long hedge fund positions inched up by 16 lately. Arthur J. Gallagher & Co. (NYSE:AJG) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AJG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 24 hedge funds in our database with AJG holdings at the end of March.

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 79 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s analyze the key hedge fund action regarding Arthur J. Gallagher & Co. (NYSE:AJG).

Do Hedge Funds Think AJG Is A Good Stock To Buy Now?

At the end of June, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AJG over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the number one position in Arthur J. Gallagher & Co. (NYSE:AJG), worth close to $84.4 million, accounting for 0.1% of its total 13F portfolio. On Arrowstreet Capital’s heels is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $61.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism consist of Robert Pohly’s Samlyn Capital, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 2.25% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, dishing out 1.38 percent of its 13F equity portfolio to AJG.

Now, key money managers were breaking ground themselves. Samlyn Capital, managed by Robert Pohly, established the most outsized position in Arthur J. Gallagher & Co. (NYSE:AJG). Samlyn Capital had $48.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $44.3 million investment in the stock during the quarter. The other funds with brand new AJG positions are James Parsons’s Junto Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks similar to Arthur J. Gallagher & Co. (NYSE:AJG). These stocks are Ameriprise Financial, Inc. (NYSE:AMP), EPAM Systems Inc (NYSE:EPAM), Best Buy Co., Inc. (NYSE:BBY), Equity Residential (NYSE:EQR), CBRE Group, Inc. (NYSE:CBRE), Energy Transfer L.P. (NYSE:ET), and Nucor Corporation (NYSE:NUE). All of these stocks’ market caps are closest to AJG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMP 37 1192124 0
EPAM 33 522910 9
BBY 27 984205 -6
EQR 31 521478 8
CBRE 37 2648713 7
ET 29 835292 4
NUE 32 196463 7
Average 32.3 985884 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.3 hedge funds with bullish positions and the average amount invested in these stocks was $986 million. That figure was $501 million in AJG’s case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand Best Buy Co., Inc. (NYSE:BBY) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Arthur J. Gallagher & Co. (NYSE:AJG) is more popular among hedge funds. Our overall hedge fund sentiment score for AJG is 90. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 21.8% in 2021 through October 11th but still managed to beat the market by 4.4 percentage points. Hedge funds were also right about betting on AJG as the stock returned 12.4% since the end of June (through 10/11) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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