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How Did Assured Guaranty Ltd. (AGO) Compare Against Top Hedge Fund Stocks in 2019?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Assured Guaranty Ltd. (NYSE:AGO).

Assured Guaranty Ltd. (NYSE:AGO) shareholders have witnessed a decrease in hedge fund interest recently. AGO was in 35 hedge funds’ portfolios at the end of September. There were 36 hedge funds in our database with AGO positions at the end of the previous quarter. Our calculations also showed that AGO 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).

According to most stock holders, hedge funds are viewed as slow, old financial tools of yesteryear. While there are more than 8000 funds in operation today, Our experts hone in on the moguls of this club, about 750 funds. Most estimates calculate that this group of people orchestrate bulk of the hedge fund industry’s total capital, and by keeping track of their top investments, Insider Monkey has identified numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Frank Brosens Taconic Capital

Frank Brosens of Taconic Capital

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his 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. Keeping this in mind let’s view the fresh hedge fund action regarding Assured Guaranty Ltd. (NYSE:AGO).

Hedge fund activity in Assured Guaranty Ltd. (NYSE:AGO)

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in AGO 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 Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the number one position in Assured Guaranty Ltd. (NYSE:AGO). AQR Capital Management has a $176.4 million position in the stock, comprising 0.2% of its 13F portfolio. On AQR Capital Management’s heels is GLG Partners, managed by Noam Gottesman, which holds a $78.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Kahn Brothers, Frank Brosens’s Taconic Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Aurelius Capital Management allocated the biggest weight to Assured Guaranty Ltd. (NYSE:AGO), around 86.39% of its 13F portfolio. Tegean Capital Management is also relatively very bullish on the stock, designating 15.86 percent of its 13F equity portfolio to AGO.

Due to the fact that Assured Guaranty Ltd. (NYSE:AGO) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few fund managers who were dropping their full holdings heading into Q4. It’s worth mentioning that Steven Tananbaum’s GoldenTree Asset Management dumped the largest position of all the hedgies followed by Insider Monkey, totaling about $13.4 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $12.5 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Assured Guaranty Ltd. (NYSE:AGO) but similarly valued. We will take a look at China Biologic Products Holdings, Inc. (NASDAQ:CBPO), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), Companhia Siderurgica Nacional (NYSE:SID), and Littelfuse, Inc. (NASDAQ:LFUS). This group of stocks’ market values resemble AGO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBPO 14 504724 5
PNFP 15 84557 -3
SID 7 18261 -3
LFUS 18 270623 3
Average 13.5 219541 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $576 million in AGO’s case. Littelfuse, Inc. (NASDAQ:LFUS) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Assured Guaranty Ltd. (NYSE:AGO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AGO were disappointed as the stock returned 29.7% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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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