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How Did Arthur J. Gallagher & Co. (AJG) Compare Against Top Hedge Fund Stocks in 2019?

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Arthur J. Gallagher & Co. (NYSE:AJG).

Arthur J. Gallagher & Co. (NYSE:AJG) was in 23 hedge funds’ portfolios at the end of September. AJG investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 25 hedge funds in our database with AJG positions at the end of the previous quarter. Our calculations also showed that AJG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s take a look at the latest hedge fund action surrounding Arthur J. Gallagher & Co. (NYSE:AJG).

How are hedge funds trading Arthur J. Gallagher & Co. (NYSE:AJG)?

At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AJG over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Balyasny Asset Management was the largest shareholder of Arthur J. Gallagher & Co. (NYSE:AJG), with a stake worth $63.5 million reported as of the end of September. Trailing Balyasny Asset Management was Adage Capital Management, which amassed a stake valued at $56.1 million. Echo Street Capital Management, Millennium Management, and Point72 Asset Management 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 Capital Returns Management allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 9.31% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, dishing out 2.26 percent of its 13F equity portfolio to AJG.

Since Arthur J. Gallagher & Co. (NYSE:AJG) has faced declining sentiment from the smart money, it’s safe to say that there were a few funds who were dropping their entire stakes in the third quarter. At the top of the heap, David E. Shaw’s D E Shaw sold off the largest position of the 750 funds followed by Insider Monkey, totaling close to $9.5 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $8.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Arthur J. Gallagher & Co. (NYSE:AJG). We will take a look at Magna International Inc. (NYSE:MGA), Marvell Technology Group Ltd. (NASDAQ:MRVL), Credicorp Ltd. (NYSE:BAP), and Halliburton Company (NYSE:HAL). This group of stocks’ market caps are closest to AJG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGA 17 432332 3
MRVL 31 682428 -6
BAP 22 655780 2
HAL 31 817394 -2
Average 25.25 646984 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $647 million. That figure was $287 million in AJG’s case. Marvell Technology Group Ltd. (NASDAQ:MRVL) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 17 bullish hedge fund positions. Arthur J. Gallagher & Co. (NYSE:AJG) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on AJG, though not to the same extent, as the stock returned 31.8% in 2019 and surpassed the market.
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.

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