Hedge Funds Are Dropping Arthur J. Gallagher & Co. (AJG) From Their Portfolios

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Arthur J. Gallagher & Co. (NYSE:AJG).

Arthur J. Gallagher & Co. (NYSE:AJG) has seen a decrease in hedge fund sentiment lately. AJG was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. There were 31 hedge funds in our database with AJG holdings at the end of the previous quarter. Our calculations also showed that AJG 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In the eyes of most shareholders, hedge funds are seen as underperforming, outdated investment vehicles of years past. While there are more than 8000 funds trading at present, Our researchers look at the masters of this group, around 850 funds. It is estimated that this group of investors direct bulk of the smart money’s total asset base, and by shadowing their first-class stock picks, Insider Monkey has spotted various investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy defeated 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 .

Rajiv Jain of GQG Partners

Rajiv Jain of GQG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to go over the key hedge fund action regarding Arthur J. Gallagher & Co. (NYSE:AJG).

What does smart money think about Arthur J. Gallagher & Co. (NYSE:AJG)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in AJG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Viking Global was the largest shareholder of Arthur J. Gallagher & Co. (NYSE:AJG), with a stake worth $94.5 million reported as of the end of September. Trailing Viking Global was Adage Capital Management, which amassed a stake valued at $71.8 million. Citadel Investment Group, Millennium Management, and Point72 Asset 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 Spindletop Capital allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 4.74% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, dishing out 3.32 percent of its 13F equity portfolio to AJG.

Seeing as Arthur J. Gallagher & Co. (NYSE:AJG) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that slashed their positions entirely in the first quarter. It’s worth mentioning that Ron Bobman’s Capital Returns Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, worth an estimated $4.5 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $4.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Arthur J. Gallagher & Co. (NYSE:AJG) but similarly valued. These stocks are Stanley Black & Decker, Inc. (NYSE:SWK), Marathon Petroleum Corp (NYSE:MPC), Check Point Software Technologies Ltd. (NASDAQ:CHKP), and IAC/InterActiveCorp (NASDAQ:IAC). This group of stocks’ market values are similar to AJG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWK 36 907916 -5
MPC 57 996652 -12
CHKP 29 599085 -1
IAC 57 2692755 -14
Average 44.75 1299102 -8

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $1299 million. That figure was $373 million in AJG’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Check Point Software Technologies Ltd. (NASDAQ:CHKP) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Arthur J. Gallagher & Co. (NYSE:AJG) is even less popular than CHKP. Hedge funds dodged a bullet by taking a bearish stance towards AJG. 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 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately AJG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); AJG investors were disappointed as the stock returned 15.7% during the second quarter (through the end of May) 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.

Follow Arthur J. Gallagher & Co. (NYSE:AJG)

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