Were Hedge Funds Right About Dumping Ambac Financial Group, Inc. (AMBC) ?

Is Ambac Financial Group, Inc. (NASDAQ:AMBC) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is Ambac Financial Group, Inc. (NASDAQ:AMBC) a bargain? Investors who are in the know are selling. The number of long hedge fund positions were trimmed by 4 lately. Our calculations also showed that AMBC isn’t among the 30 most popular stocks among hedge funds. AMBC was in 17 hedge funds’ portfolios at the end of December. There were 21 hedge funds in our database with AMBC holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Martin Raging Capital Management

We’re going to take a gander at the latest hedge fund action encompassing Ambac Financial Group, Inc. (NASDAQ:AMBC).

What does the smart money think about Ambac Financial Group, Inc. (NASDAQ:AMBC)?

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2018. By comparison, 19 hedge funds held shares or bullish call options in AMBC a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).


The largest stake in Ambac Financial Group, Inc. (NASDAQ:AMBC) was held by EJF Capital, which reported holding $36.1 million worth of stock at the end of December. It was followed by Raging Capital Management with a $26.1 million position. Other investors bullish on the company included Tontine Asset Management, GLG Partners, and Rubric Capital Management.

Because Ambac Financial Group, Inc. (NASDAQ:AMBC) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their entire stakes heading into Q3. It’s worth mentioning that Israel Englander’s Millennium Management dropped the biggest investment of the 700 funds watched by Insider Monkey, totaling about $1.4 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ambac Financial Group, Inc. (NASDAQ:AMBC) but similarly valued. We will take a look at HealthStream, Inc. (NASDAQ:HSTM), Cass Information Systems (NASDAQ:CASS), Triumph Bancorp Inc (NASDAQ:TBK), and Fossil Group Inc (NASDAQ:FOSL). This group of stocks’ market valuations are similar to AMBC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HSTM 14 48729 3
CASS 8 14771 1
TBK 6 59631 -1
FOSL 18 87459 0
Average 11.5 52648 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $142 million in AMBC’s case. Fossil Group Inc (NASDAQ:FOSL) is the most popular stock in this table. On the other hand Triumph Bancorp Inc (NASDAQ:TBK) is the least popular one with only 6 bullish hedge fund positions. Ambac Financial Group, Inc. (NASDAQ:AMBC) 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 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AMBC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on AMBC were disappointed as the stock returned 6.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

Disclosure: None. This article was originally published at Insider Monkey.