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Hedge Funds Aren’t Crazy About Ambac Financial Group, Inc. (AMBC) Anymore

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Ambac Financial Group, Inc. (NASDAQ:AMBC) investors should be aware of a decrease in support from the world’s most elite money managers of late. AMBC was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with AMBC holdings at the end of the previous quarter. Our calculations also showed that AMBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most stock holders, hedge funds are viewed as worthless, old financial vehicles of yesteryear. While there are over 8000 funds in operation today, Our researchers choose to focus on the crème de la crème of this club, approximately 750 funds. It is estimated that this group of investors oversee the majority of all hedge funds’ total asset base, and by following their highest performing stock picks, Insider Monkey has uncovered many investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

William Martin Raging Capital Management

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let’s go over the latest hedge fund action regarding Ambac Financial Group, Inc. (NASDAQ:AMBC).

What have hedge funds been doing with Ambac Financial Group, Inc. (NASDAQ:AMBC)?

At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in AMBC a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

AMBC_nov2019

Among these funds, EJF Capital held the most valuable stake in Ambac Financial Group, Inc. (NASDAQ:AMBC), which was worth $34.8 million at the end of the second quarter. On the second spot was Raging Capital Management which amassed $31.7 million worth of shares. Moreover, Citadel Investment Group, Tontine Asset Management, and CQS Cayman LP were also bullish on Ambac Financial Group, Inc. (NASDAQ:AMBC), allocating a large percentage of their portfolios to this stock.

Because Ambac Financial Group, Inc. (NASDAQ:AMBC) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds that slashed their full holdings by the end of the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling close to $7.9 million in stock. Andy Redleaf’s fund, Whitebox Advisors, also dumped its stock, about $2.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ambac Financial Group, Inc. (NASDAQ:AMBC) but similarly valued. These stocks are Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Kura Oncology, Inc. (NASDAQ:KURA), and Eagle Pharmaceuticals Inc (NASDAQ:EGRX). This group of stocks’ market caps are similar to AMBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCSL 17 80282 -2
ITCI 11 39450 -1
KURA 22 289681 5
EGRX 20 157855 -3
Average 17.5 141817 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $113 million in AMBC’s case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 11 bullish hedge fund positions. Ambac Financial Group, Inc. (NASDAQ:AMBC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AMBC as the stock returned 16% during the same time frame and outperformed the market by an even larger margin.

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

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