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Is American Financial Group (AFG) Going to Burn These Hedge Funds?

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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 American Financial Group (NYSE:AFG).

American Financial Group (NYSE:AFG) was in 21 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 30. AFG shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 24 hedge funds in our database with AFG positions at the end of the fourth quarter. Our calculations also showed that AFG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Now we're going to take a glance at the new hedge fund action regarding American Financial Group (NYSE:AFG).

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

Heading into the second quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AFG over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AFG A Good Stock To Buy?
Is AFG A Good Stock To Buy?

The largest stake in American Financial Group (NYSE:AFG) was held by D E Shaw, which reported holding $29.3 million worth of stock at the end of December. It was followed by Two Sigma Advisors with a $24.3 million position. Other investors bullish on the company included Balyasny Asset Management, Millennium Management, and Gillson Capital. In terms of the portfolio weights assigned to each position Full18 Capital allocated the biggest weight to American Financial Group (NYSE:AFG), around 3.2% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, dishing out 1.29 percent of its 13F equity portfolio to AFG.

Seeing as American Financial Group (NYSE:AFG) has faced a decline in interest from hedge fund managers, it's safe to say that there is a sect of hedgies that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Daniel Lascano's Lomas Capital Management dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, comprising close to $95.7 million in stock, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund sold off about $3.1 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as American Financial Group (NYSE:AFG) but similarly valued. We will take a look at MGM Growth Properties LLC (NYSE:MGP), Aspen Technology, Inc. (NASDAQ:AZPN), Paylocity Holding Corp (NASDAQ:PCTY), Paysafe Limited (NYSE:PSFE), Western Alliance Bancorporation (NYSE:WAL), McAfee Corp. (NASDAQ:MCFE), and ContextLogic Inc. (NASDAQ:WISH). This group of stocks' market valuations are closest to AFG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGP,34,592102,5 AZPN,32,1158081,3 PCTY,22,539146,-4 PSFE,41,1326259,41 WAL,23,141015,1 MCFE,17,174841,-3 WISH,25,297175,1 Average,27.7,604088,6.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $604 million. That figure was $192 million in AFG's case. Paysafe Limited (NYSE:PSFE) is the most popular stock in this table. On the other hand McAfee Corp. (NASDAQ:MCFE) is the least popular one with only 17 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. Our overall hedge fund sentiment score for AFG is 31.3. 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. 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on AFG as the stock returned 24.3% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.

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