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American Financial Group (AFG): Hedge Funds Are Nibbling

Asma UL Husna
·6 mins read

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought American Financial Group, Inc. (NYSE:AFG) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

American Financial Group, Inc. (NYSE:AFG) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. AFG investors should be aware of an increase in support from the world's most elite money managers recently. There were 24 hedge funds in our database with AFG positions at the end of the first quarter. Our calculations also showed that AFG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we're going to review the new hedge fund action regarding American Financial Group, Inc. (NYSE:AFG).

Hedge fund activity in American Financial Group, Inc. (NYSE:AFG)

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the first quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in AFG a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in American Financial Group, Inc. (NYSE:AFG) was held by Citadel Investment Group, which reported holding $43.1 million worth of stock at the end of September. It was followed by Lomas Capital Management with a $33.7 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Lomas Capital Management allocated the biggest weight to American Financial Group, Inc. (NYSE:AFG), around 7.15% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to AFG.

As industrywide interest jumped, some big names were breaking ground themselves. Prana Capital Management, managed by Peter Seuss, assembled the most valuable position in American Financial Group, Inc. (NYSE:AFG). Prana Capital Management had $13.3 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.4 million position during the quarter. The following funds were also among the new AFG investors: Donald Sussman's Paloma Partners, Benjamin A. Smith's Laurion Capital Management, and Jinghua Yan's TwinBeech Capital.

Let's go over hedge fund activity in other stocks similar to American Financial Group, Inc. (NYSE:AFG). These stocks are Polaris Inc. (NYSE:PII), Inphi Corporation (NYSE:IPHI), Autoliv Inc. (NYSE:ALV), HD Supply Holdings Inc (NASDAQ:HDS), Apartment Investment and Management Co. (NYSE:AIV), AppFolio Inc (NASDAQ:APPF), and Zions Bancorporation, National Association (NASDAQ:ZION). All of these stocks' market caps are similar to AFG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PII,34,426967,10 IPHI,46,643116,10 ALV,22,542948,7 HDS,44,992771,4 AIV,24,488634,3 APPF,21,400415,2 ZION,24,66065,-9 Average,30.7,508702,3.9 [/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 $509 million. That figure was $236 million in AFG's case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand AppFolio Inc (NASDAQ:APPF) is the least popular one with only 21 bullish hedge fund positions. American Financial Group, Inc. (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 51. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately AFG wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AFG investors were disappointed as the stock returned 2.6% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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