We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether AssetMark Financial Holdings, Inc. (NYSE:AMK) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
AssetMark Financial Holdings, Inc. (NYSE:AMK) was in 6 hedge funds' portfolios at the end of the fourth quarter of 2019. AMK investors should be aware of a decrease in hedge fund sentiment lately. There were 10 hedge funds in our database with AMK holdings at the end of the previous quarter. Our calculations also showed that AMK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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 41 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 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.
[caption id="attachment_340081" align="aligncenter" width="400"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's take a look at the key hedge fund action encompassing AssetMark Financial Holdings, Inc. (NYSE:AMK).
What have hedge funds been doing with AssetMark Financial Holdings, Inc. (NYSE:AMK)?
Heading into the first quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the third quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in AMK a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in AssetMark Financial Holdings, Inc. (NYSE:AMK), which was worth $20.1 million at the end of the third quarter. On the second spot was Azora Capital which amassed $17.9 million worth of shares. Balyasny Asset Management, Millennium Management, and Citadel Investment Group 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 Azora Capital allocated the biggest weight to AssetMark Financial Holdings, Inc. (NYSE:AMK), around 2.54% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to AMK.
Since AssetMark Financial Holdings, Inc. (NYSE:AMK) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds that elected to cut their full holdings heading into Q4. It's worth mentioning that Robert Pohly's Samlyn Capital dumped the largest position of the 750 funds monitored by Insider Monkey, worth about $3.2 million in stock, and Chuck Royce's Royce & Associates was right behind this move, as the fund sold off about $0.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AssetMark Financial Holdings, Inc. (NYSE:AMK) but similarly valued. These stocks are Matador Resources Co (NYSE:MTDR), Mack Cali Realty Corp (NYSE:CLI), AlarmCom Holdings Inc (NASDAQ:ALRM), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). All of these stocks' market caps are closest to AMK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTDR,23,163971,7 CLI,15,133709,2 ALRM,28,260363,7 IRWD,28,416880,3 Average,23.5,243731,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $50 million in AMK's case. AlarmCom Holdings Inc (NASDAQ:ALRM) is the most popular stock in this table. On the other hand Mack Cali Realty Corp (NYSE:CLI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks AssetMark Financial Holdings, Inc. (NYSE:AMK) is even less popular than CLI. Hedge funds dodged a bullet by taking a bearish stance towards AMK. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately AMK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AMK investors were disappointed as the stock returned -32.1% during the same time period 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.