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AGNC Investment Corp. (AGNC): Are Hedge Funds Right About This Stock?

Asma UL Husna

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of AGNC Investment Corp. (NASDAQ:AGNC).

AGNC Investment Corp. (NASDAQ:AGNC) has seen an increase in hedge fund interest lately. Our calculations also showed that AGNC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

AGNC_oct2019

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the key hedge fund action regarding AGNC Investment Corp. (NASDAQ:AGNC).

How have hedgies been trading AGNC Investment Corp. (NASDAQ:AGNC)?

Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 53% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AGNC over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

setting up a hedge fund

The largest stake in AGNC Investment Corp. (NASDAQ:AGNC) was held by Renaissance Technologies, which reported holding $16.4 million worth of stock at the end of March. It was followed by Soros Fund Management with a $14.3 million position. Other investors bullish on the company included Gillson Capital, Citadel Investment Group, and Hudson Bay Capital Management.

As aggregate interest increased, key money managers have jumped into AGNC Investment Corp. (NASDAQ:AGNC) headfirst. Soros Fund Management, managed by George Soros, initiated the most valuable position in AGNC Investment Corp. (NASDAQ:AGNC). Soros Fund Management had $14.3 million invested in the company at the end of the quarter. Daniel Johnson's Gillson Capital also initiated a $12.7 million position during the quarter. The following funds were also among the new AGNC investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Benjamin A. Smith's Laurion Capital Management, and Alec Litowitz and Ross Laser's Magnetar Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AGNC Investment Corp. (NASDAQ:AGNC) but similarly valued. We will take a look at Beyond Meat, Inc. (NASDAQ:BYND), PulteGroup, Inc. (NYSE:PHM), CPFL Energia S.A. (NYSE:CPL), and WEX Inc (NYSE:WEX). This group of stocks' market values match AGNC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BYND,16,67057,16 PHM,31,838424,6 CPL,4,17571,2 WEX,31,574756,1 Average,20.5,374452,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $81 million in AGNC's case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 4 bullish hedge fund positions. AGNC Investment Corp. (NASDAQ:AGNC) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AGNC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AGNC were disappointed as the stock returned -1.4% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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