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Assured Guaranty (AGO) Has Fallen 53% in Last One Year, Underperforms Market

Alex Smith
·4 min read

If you are looking for the best ideas for your portfolio you may want to consider some of Greenlight Capital's top stock picks. Greenlight Capital, an investment management firm, is bearish on Assured Guaranty Ltd (NYSE:AGO) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Assured Guaranty Ltd (NYSE:AGO) stock. Assured Guaranty Ltd (NYSE:AGO) is an insurance company.

On July 25, 2019, Greenlight Capital had released its Q2 2019 investor letter. Assured Guaranty Ltd (NYSE:AGO) stock has posted a return of -53.3% in the trailing one year period, underperforming the S&P 500 Index which returned 13.4% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Assured Guaranty Ltd (NYSE:AGO) stock has fallen by 58.1%.

In Q2 2019 investor letter, Greenlight Capital said the fund posted a return of 5.8% in the second quarter of 2019, outperforming the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Greenlight Capital about Assured Guaranty Ltd (NYSE:AGO) stock in the Q2 2019 investor letter.

"Due to its declining book of business, AGO’s earnings are falling and are expected to be less than $300 million this year. In prior years, AGO obtained regulatory permission for special dividends – generally on the order of $200-300 million during the fourth quarter. This year, permission was granted approximately six months later than usual and it was for only $100 million. It appears that the regulators are limiting AGO’s buyback capacity.

Perhaps it’s due to AGO’s smaller book and reduced earnings. Or, perhaps it’s due to the company’s exposure to Puerto Rico. The company has $4.5 billion of exposure to defaulted Puerto Rican debt. Its loss reserves on its entire $226 billion public finance insured portfolio are less than $700 million. On June 17, 2019 the Financial Oversight and Management Board announced a plan to restructure Puerto Rico’s debt and impose large losses on bondholders. We estimate AGO’s loss under this plan to be over $3 billion. While we understand the plan isn’t final and will likely be improved somewhat, we don’t believe the company can plausibly maintain its current GAAP loss reserves at such low levels. A large charge, which is needed now, could further impair AGO’s ability to get permission for the special dividends to continue the aggressive buyback that has been supporting its stock price."

Pixabay/Public Domain

In Q1 2020, the number of bullish hedge fund positions on Assured Guaranty Ltd (NYSE:AGO) stock decreased by about 15% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with AGO's downside potential. Our calculations showed that Assured Guaranty Ltd (NYSE:AGO) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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