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Hedge Funds Have Never Been This Bullish On Arch Capital Group Ltd. (ACGL)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Arch Capital Group Ltd. (NASDAQ:ACGL) based on that data.

Arch Capital Group Ltd. (NASDAQ:ACGL) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that ACGL 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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. Now we’re going to take a look at the key hedge fund action encompassing Arch Capital Group Ltd. (NASDAQ:ACGL).

How have hedgies been trading Arch Capital Group Ltd. (NASDAQ:ACGL)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in ACGL a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in Arch Capital Group Ltd. (NASDAQ:ACGL) was held by FPR Partners, which reported holding $307.2 million worth of stock at the end of September. It was followed by Polar Capital with a $166.9 million position. Other investors bullish on the company included Renaissance Technologies, AQR Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position FPR Partners allocated the biggest weight to Arch Capital Group Ltd. (NASDAQ:ACGL), around 12.63% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, setting aside 2.69 percent of its 13F equity portfolio to ACGL.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, initiated the most valuable position in Arch Capital Group Ltd. (NASDAQ:ACGL). Echo Street Capital Management had $14.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $4.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Anthony Bozza’s Lakewood Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Brett Huckelbridge’s Steel Canyon Capital.

Let’s go over hedge fund activity in other stocks similar to Arch Capital Group Ltd. (NASDAQ:ACGL). We will take a look at LINE Corporation (NYSE:LN), Credicorp Ltd. (NYSE:BAP), Waters Corporation (NYSE:WAT), and Teladoc Health, Inc. (NYSE:TDOC). All of these stocks’ market caps are similar to ACGL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LN 7 59060 -6
BAP 22 193610 0
WAT 25 337327 -2
TDOC 36 532644 13
Average 22.5 280660 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $734 million in ACGL’s case. Teladoc Health, Inc.(NYSE:TDOC) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 7 bullish hedge fund positions. Arch Capital Group Ltd. (NASDAQ:ACGL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately ACGL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ACGL were disappointed as the stock returned -0.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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

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