Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
AGNC Investment Corp. (NASDAQ:AGNC) was in 15 hedge funds' portfolios at the end of the third quarter of 2019. AGNC has seen a decrease in support from the world's most elite money managers lately. There were 23 hedge funds in our database with AGNC positions at the end of the previous quarter. Our calculations also showed that AGNC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_25583" align="aligncenter" width="449"] George Soros of Soros Fund Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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. We also rely on the best performing hedge funds' buy/sell signals. We're going to analyze the fresh hedge fund action regarding AGNC Investment Corp. (NASDAQ:AGNC).
What does smart money think about AGNC Investment Corp. (NASDAQ:AGNC)?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AGNC over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of AGNC Investment Corp. (NASDAQ:AGNC), with a stake worth $84.8 million reported as of the end of September. Trailing Citadel Investment Group was Soros Fund Management, which amassed a stake valued at $18.9 million. Winton Capital Management, Hudson Bay Capital Management, and Alyeska Investment Group 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 Neo Ivy Capital allocated the biggest weight to AGNC Investment Corp. (NASDAQ:AGNC), around 0.84% of its 13F portfolio. Soros Fund Management is also relatively very bullish on the stock, earmarking 0.52 percent of its 13F equity portfolio to AGNC.
Due to the fact that AGNC Investment Corp. (NASDAQ:AGNC) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers that elected to cut their positions entirely by the end of the third quarter. It's worth mentioning that Renaissance Technologies cut the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling close to $16.4 million in stock. Daniel Johnson's fund, Gillson Capital, also dumped its stock, about $12.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 8 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to AGNC Investment Corp. (NASDAQ:AGNC). These stocks are MGM Growth Properties LLC (NYSE:MGP), Fair Isaac Corporation (NYSE:FICO), Huntington Ingalls Industries Inc (NYSE:HII), and WEX Inc (NYSE:WEX). All of these stocks' market caps match AGNC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGP,18,307511,4 FICO,40,873383,6 HII,19,589653,-4 WEX,25,474044,-6 Average,25.5,561148,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $127 million in AGNC's case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand MGM Growth Properties LLC (NYSE:MGP) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks AGNC Investment Corp. (NASDAQ:AGNC) is even less popular than MGP. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on AGNC, though not to the same extent, as the stock returned 9.7% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.