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Alleghany Corporation (Y): Hedge Funds Are Cashing Out

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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 Alleghany Corporation (NYSE:Y).

Alleghany Corporation (NYSE:Y) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Alleghany Corporation (NYSE:Y) was in 32 hedge funds' portfolios at the end of June. The all time high for this statistic is 34. There were 34 hedge funds in our database with Y positions at the end of the first quarter. Our calculations also showed that Y isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joel Greenblatt Gotham Asset Management
Joel Greenblatt Gotham Asset Management

Joel Greenblatt of Gotham Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to take a peek at the key hedge fund action encompassing Alleghany Corporation (NYSE:Y).

Do Hedge Funds Think Y Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in Y a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, 0 was the largest shareholder of Alleghany Corporation (NYSE:Y), with a stake worth $123.4 million reported as of the end of June. Trailing Polar Capital was Diamond Hill Capital, which amassed a stake valued at $53.4 million. Royce & Associates, AQR Capital Management, and Prospector Partners 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 Prospector Partners allocated the biggest weight to Alleghany Corporation (NYSE:Y), around 3.14% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 0.99 percent of its 13F equity portfolio to Y.

Judging by the fact that Alleghany Corporation (NYSE:Y) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of fund managers who sold off their positions entirely last quarter. It's worth mentioning that Greg Poole's Echo Street Capital Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $29.3 million in stock. Mitch Cantor's fund, Mountain Lake Investment Management, also dropped its stock, about $6.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Alleghany Corporation (NYSE:Y). These stocks are AECOM (NYSE:ACM), AptarGroup, Inc. (NYSE:ATR), Pinnacle West Capital Corporation (NYSE:PNW), Dun & Bradstreet Holdings, Inc. (NYSE:DNB), Syneos Health, Inc. (NASDAQ:SYNH), Manhattan Associates, Inc. (NASDAQ:MANH), and Neurocrine Biosciences, Inc. (NASDAQ:NBIX). This group of stocks' market values match Y's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACM,32,791285,-6 ATR,27,331504,7 PNW,18,143695,3 DNB,45,869485,16 SYNH,33,670476,5 MANH,28,408526,0 NBIX,32,900271,13 Average,30.7,587892,5.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $588 million. That figure was $387 million in Y's case. Dun & Bradstreet Holdings, Inc. (NYSE:DNB) is the most popular stock in this table. On the other hand Pinnacle West Capital Corporation (NYSE:PNW) is the least popular one with only 18 bullish hedge fund positions. Alleghany Corporation (NYSE:Y) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for Y is 57.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately Y wasn't nearly as popular as these 5 stocks and hedge funds that were betting on Y were disappointed as the stock returned -0.8% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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