What Smart Money Thinks About American Financial Group Inc (AFG)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards American Financial Group Inc (NYSE:AFG) .

Is American Financial Group Inc (NYSE:AFG) an exceptional investment right now? Money managers seem to be taking a slightly bearish view. During the third quarter, the number of funds tracked by Insider Monkey bullish on the stock declined by two to 16. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Flextronics International Ltd. (NASDAQ:FLEX), Rollins, Inc. (NYSE:ROL), and Liberty Media Corp (NASDAQ:LMCA) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, we’re going to review the recent action surrounding American Financial Group Inc (NYSE:AFG).

How are hedge funds trading American Financial Group Inc (NYSE:AFG)?

Heading into the fourth quarter of 2016, a total of 16 of the hedge funds tracked by Insider Monkey were long American Financial Group Inc (NYSE:AFG), which represents a drop of 11% from the second quarter of 2016. By comparison, 16 hedge funds held shares or bullish call options in AFG heading into this year. So, let’s review 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, Cliff Asness’ AQR Capital Management, holds the biggest position in American Financial Group Inc (NYSE:AFG). AQR Capital Management has a $96.8 million position in the stock. The second most bullish fund is Chuck Royce’s Royce & Associates which holds a $8.4 million position. Remaining professional money managers that hold long positions consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management, and John Overdeck and David Siegel’s Two Sigma Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Due to the fact that American Financial Group Inc (NYSE:AFG) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers who sold off their full holdings heading into fourth. Intriguingly, George Hall’s Clinton Group dumped the biggest stake of all the hedgies studied by Insider Monkey, totaling about $0.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock valued at about $0.6 million.

Let’s also examine hedge fund activity in other stocks similar to American Financial Group Inc (NYSE:AFG). We will take a look at Flextronics International Ltd. (NASDAQ:FLEX), Rollins, Inc. (NYSE:ROL), Liberty Media Corp (NASDAQ:LMCA), and Omega Healthcare Investors Inc (NYSE:OHI). This group of stocks’ market values resemble AFG’s market value.

As you can see these stocks had an average of 20 investors with bullish positions and the average amount invested in these stocks was $507 million, compared to $126 million in AFG’s case. Flextronics International Ltd. (NASDAQ:FLEX) is the most popular stock in this table, while Rollins, Inc. (NYSE:ROL) is the least popular one with only 11 bullish hedge fund positions. American Financial Group (NYSE:AFG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Flextronics International Ltd. (NASDAQ:FLEX) might be a better candidate to consider taking a long position in.

Disclosure: None