Is Assured Guaranty Ltd. (AGO) Going to Burn These Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Assured Guaranty Ltd. (NYSE:AGO) and determine whether hedge funds skillfully traded this stock.

Assured Guaranty Ltd. (NYSE:AGO) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. AGO has experienced a decrease in enthusiasm from smart money of late. There were 28 hedge funds in our database with AGO holdings at the end of March. Our calculations also showed that AGO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most traders, hedge funds are seen as worthless, outdated investment tools of the past. While there are more than 8000 funds in operation at the moment, Our experts hone in on the moguls of this club, about 850 funds. It is estimated that this group of investors shepherd most of the smart money’s total asset base, and by keeping an eye on their matchless stock picks, Insider Monkey has unearthed a number of investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Assured Guaranty Ltd. (NYSE:AGO).

What have hedge funds been doing with Assured Guaranty Ltd. (NYSE:AGO)?

At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AGO over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AGO A Good Stock To Buy?

Among these funds, Kahn Brothers held the most valuable stake in Assured Guaranty Ltd. (NYSE:AGO), which was worth $37.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $31.1 million worth of shares. GLG Partners, Arrowstreet Capital, and D E Shaw 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 Tegean Capital Management allocated the biggest weight to Assured Guaranty Ltd. (NYSE:AGO), around 13.33% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, dishing out 6.36 percent of its 13F equity portfolio to AGO.

Judging by the fact that Assured Guaranty Ltd. (NYSE:AGO) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that elected to cut their positions entirely by the end of the second quarter. Interestingly, Robert Pohly’s Samlyn Capital said goodbye to the largest position of all the hedgies tracked by Insider Monkey, valued at close to $20.5 million in stock, and Don Morgan’s Brigade Capital was right behind this move, as the fund dumped about $9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Assured Guaranty Ltd. (NYSE:AGO) but similarly valued. These stocks are Murphy Oil Corporation (NYSE:MUR), Patterson Companies, Inc. (NASDAQ:PDCO), Associated Banc Corp (NYSE:ASB), Cronos Group Inc. (NASDAQ:CRON), Helmerich & Payne, Inc. (NYSE:HP), Piedmont Office Realty Trust, Inc. (NYSE:PDM), and Laureate Education, Inc. (NASDAQ:LAUR). This group of stocks’ market valuations are similar to AGO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MUR 15 86330 -5
PDCO 22 126336 5
ASB 22 142871 6
CRON 14 82765 4
HP 33 187804 6
PDM 11 41417 4
LAUR 31 161065 6
Average 21.1 118370 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $219 million in AGO’s case. Helmerich & Payne, Inc. (NYSE:HP) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 11 bullish hedge fund positions. Assured Guaranty Ltd. (NYSE:AGO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AGO is 53.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately AGO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AGO were disappointed as the stock returned -16.3% 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.