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Should You Avoid Affiliated Managers Group, Inc. (AMG)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Affiliated Managers Group, Inc. (NYSE:AMG).

Is Affiliated Managers Group, Inc. (NYSE:AMG) undervalued? Hedge funds are getting less optimistic. The number of long hedge fund bets decreased by 11 recently. Our calculations also showed that AMG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the new hedge fund action encompassing Affiliated Managers Group, Inc. (NYSE:AMG).

Hedge fund activity in Affiliated Managers Group, Inc. (NYSE:AMG)

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AMG over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Affiliated Managers Group, Inc. (NYSE:AMG) was held by Southeastern Asset Management, which reported holding $82.9 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $61.5 million position. Other investors bullish on the company included Ariel Investments, Renaissance Technologies, and Hillhouse Capital Management. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Affiliated Managers Group, Inc. (NYSE:AMG), around 2.28% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, designating 1.97 percent of its 13F equity portfolio to AMG.

Seeing as Affiliated Managers Group, Inc. (NYSE:AMG) has faced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers who were dropping their full holdings heading into Q4. Interestingly, Noam Gottesman’s GLG Partners cut the largest stake of the “upper crust” of funds followed by Insider Monkey, worth about $7.5 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $5.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 11 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Affiliated Managers Group, Inc. (NYSE:AMG). We will take a look at Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR), Hanesbrands Inc. (NYSE:HBI), RBC Bearings Incorporated (NASDAQ:ROLL), and Physicians Realty Trust (NYSE:DOC). All of these stocks’ market caps are closest to AMG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASR 4 31709 -6
HBI 36 364607 -4
ROLL 9 39699 -1
DOC 16 133862 5
Average 16.25 142469 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $310 million in AMG’s case. Hanesbrands Inc. (NYSE:HBI) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) is the least popular one with only 4 bullish hedge fund positions. Affiliated Managers Group, Inc. (NYSE:AMG) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately AMG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AMG were disappointed as the stock returned 12.7% 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.