While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors kept their optimism regarding the current bull run in the fourth quarter, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding American Financial Group (NYSE:AFG).
American Financial Group (NYSE:AFG) has seen an increase in hedge fund sentiment in recent months. AFG was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 24 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.
If you’d ask most shareholders, hedge funds are viewed as underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds trading today, We choose to focus on the elite of this group, approximately 750 funds. It is estimated that this group of investors shepherd the lion’s share of the hedge fund industry’s total capital, and by keeping an eye on their first-class investments, Insider Monkey has determined a number of investment strategies that have historically beaten the market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by nearly 5 percentage points annually since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Cliff Asness of AQR Capital Management
Let’s review the recent hedge fund action regarding American Financial Group (NYSE:AFG).
What have hedge funds been doing with American Financial Group (NYSE:AFG)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in AFG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of American Financial Group (NYSE:AFG), with a stake worth $119.8 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $53.5 million. Millennium Management, Gillson Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in American Financial Group (NYSE:AFG). Point72 Asset Management had $3.1 million invested in the company at the end of the quarter. Ray Dalio’s Bridgewater Associates also initiated a $1 million position during the quarter. The other funds with brand new AFG positions are Alec Litowitz and Ross Laser’s Magnetar Capital, Hoon Kim’s Quantinno Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as American Financial Group (NYSE:AFG) but similarly valued. We will take a look at ANGI Homeservices Inc. (NASDAQ:ANGI), 58.com Inc (NYSE:WUBA), Andeavor Logistics LP (NYSE:ANDX), and Athene Holding Ltd. (NYSE:ATH). This group of stocks’ market values are similar to AFG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANGI | 22 | 329599 | 3 |
| WUBA | 23 | 431617 | -1 |
| ANDX | 6 | 7867 | 0 |
| ATH | 43 | 1280178 | 1 |
| Average | 23.5 | 512315 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $312 million in AFG’s case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Andeavor Logistics LP (NYSE:ANDX) is the least popular one with only 6 bullish hedge fund positions. American Financial Group (NYSE:AFG) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately AFG wasn’t in this group. Hedge funds that bet on AFG were disappointed as the stock returned 7.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
