Hedge Funds Were Getting Burned By American Financial Group, Inc. (AFG) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was American Financial Group, Inc. (NYSE:AFG).

American Financial Group, Inc. (NYSE:AFG) was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. AFG investors should be aware of a decrease in enthusiasm from smart money of late. There were 27 hedge funds in our database with AFG positions at the end of the previous quarter. Our calculations also showed that AFG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the recent hedge fund action surrounding American Financial Group, Inc. (NYSE:AFG).

What does smart money think about American Financial Group, Inc. (NYSE:AFG)?

At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the third quarter of 2019. On the other hand, there were a total of 29 hedge funds with a bullish position in AFG a year ago. So, let’s examine 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, Daniel Lascano’s Lomas Capital Management has the biggest position in American Financial Group, Inc. (NYSE:AFG), worth close to $93.6 million, amounting to 9.2% of its total 13F portfolio. On Lomas Capital Management’s heels is Cliff Asness of AQR Capital Management, with a $90.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Renaissance Technologies, Dmitry Balyasny’s Balyasny Asset Management and Thomas Rigo’s Bishop Rock Capital. In terms of the portfolio weights assigned to each position Lomas Capital Management allocated the biggest weight to American Financial Group, Inc. (NYSE:AFG), around 9.22% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, designating 6.33 percent of its 13F equity portfolio to AFG.

Because American Financial Group, Inc. (NYSE:AFG) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Peter Seuss’s Prana Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $6.5 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also dumped its stock, about $3.6 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to American Financial Group, Inc. (NYSE:AFG). These stocks are Vereit Inc (NYSE:VER), SEI Investments Company (NASDAQ:SEIC), Crown Holdings, Inc. (NYSE:CCK), and Henry Schein, Inc. (NASDAQ:HSIC). This group of stocks’ market caps are similar to AFG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VER 28 549943 -9
SEIC 29 351644 3
CCK 58 1378457 16
HSIC 36 1379739 12
Average 37.75 914946 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $915 million. That figure was $387 million in AFG’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Vereit Inc (NYSE:VER) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks American Financial Group, Inc. (NYSE:AFG) is even less popular than VER. Hedge funds dodged a bullet by taking a bearish stance towards AFG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately AFG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AFG investors were disappointed as the stock returned -48.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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