It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Amerisafe, Inc. (NASDAQ:AMSF).
Is Amerisafe, Inc. (NASDAQ:AMSF) a bargain? The smart money is buying. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that AMSF isn't among the 30 most popular stocks among hedge funds.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to analyze the recent hedge fund action encompassing Amerisafe, Inc. (NASDAQ:AMSF).
Hedge fund activity in Amerisafe, Inc. (NASDAQ:AMSF)
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in AMSF a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Amerisafe, Inc. (NASDAQ:AMSF), which was worth $5.8 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $4.1 million worth of shares. Moreover, Two Sigma Advisors, Millennium Management, and Fisher Asset Management were also bullish on Amerisafe, Inc. (NASDAQ:AMSF), allocating a large percentage of their portfolios to this stock.
Now, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the largest position in Amerisafe, Inc. (NASDAQ:AMSF). Millennium Management had $2 million invested in the company at the end of the quarter. Hoon Kim's Quantinno Capital also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.
Let's check out hedge fund activity in other stocks similar to Amerisafe, Inc. (NASDAQ:AMSF). We will take a look at Fate Therapeutics Inc (NASDAQ:FATE), Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), AAR Corp. (NYSE:AIR), and Keane Group, Inc. (NYSE:FRAC). This group of stocks' market values are closest to AMSF's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FATE,18,413631,3 CRZO,15,114113,2 AIR,23,113938,9 FRAC,28,554730,2 Average,21,299103,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $299 million. That figure was $19 million in AMSF's case. Keane Group, Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Amerisafe, Inc. (NASDAQ:AMSF) is even less popular than CRZO. Hedge funds dodged a bullet by taking a bearish stance towards AMSF. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AMSF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AMSF investors were disappointed as the stock returned 3.2% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.