Hedge Funds Have Never Been This Bullish On Alleghany Corporation (Y)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Alleghany Corporation (NYSE:Y) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Alleghany Corporation (NYSE:Y) worth your attention right now? Prominent investors were becoming hopeful. The number of bullish hedge fund bets increased by 6 recently. Alleghany Corporation (NYSE:Y) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that Y isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 25 hedge funds in our database with Y positions at the end of the first quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s check out the new hedge fund action regarding Alleghany Corporation (NYSE:Y).

What have hedge funds been doing with Alleghany Corporation (NYSE:Y)?

At second quarter’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in Y a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Polar Capital was the largest shareholder of Alleghany Corporation (NYSE:Y), with a stake worth $64.8 million reported as of the end of September. Trailing Polar Capital was Echo Street Capital Management, which amassed a stake valued at $30.7 million. Royce & Associates, AQR Capital Management, and Citadel Investment Group 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 Mountain Lake Investment Management allocated the biggest weight to Alleghany Corporation (NYSE:Y), around 3.87% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 2.29 percent of its 13F equity portfolio to Y.

As one would reasonably expect, key money managers have jumped into Alleghany Corporation (NYSE:Y) headfirst. Prospector Partners, managed by John D. Gillespie, established the largest position in Alleghany Corporation (NYSE:Y). Prospector Partners had $10.9 million invested in the company at the end of the quarter. Mitch Cantor’s Mountain Lake Investment Management also initiated a $5.4 million position during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Ravi Chopra’s Azora Capital, and Ray Dalio’s Bridgewater Associates.

Let’s go over hedge fund activity in other stocks similar to Alleghany Corporation (NYSE:Y). These stocks are News Corp (NASDAQ:NWSA), Genpact Limited (NYSE:G), Vereit Inc (NYSE:VER), Service Corporation International (NYSE:SCI), Howmet Aerospace Inc. (NYSE:HWM), Solaredge Technologies Inc (NASDAQ:SEDG), and Sociedad Quimica y Minera (NYSE:SQM). This group of stocks’ market values are closest to Y’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWSA 24 342184 -4
G 29 319870 -5
VER 23 491001 5
SCI 27 524384 -3
HWM 30 2360525 5
SEDG 25 435719 -2
SQM 14 91324 4
Average 24.6 652144 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $652 million. That figure was $271 million in Y’s case. Howmet Aerospace Inc. (NYSE:HWM) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera (NYSE:SQM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Alleghany Corporation (NYSE:Y) is more popular among hedge funds. Our overall hedge fund sentiment score for Y 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 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 23.8% in 2020 through September 14th and still managed to beat the market by 17.6 percentage points. Hedge funds were also right about betting on Y, though not to the same extent, as the stock returned 10.2% since the end of June and outperformed the market as well.

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