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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Axis Capital Holdings Limited (NYSE:AXS) and determine whether hedge funds skillfully traded this stock.
Axis Capital Holdings Limited (NYSE:AXS) was in 35 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AXS investors should pay attention to an increase in hedge fund sentiment of late. There were 32 hedge funds in our database with AXS positions at the end of the first quarter. Our calculations also showed that AXS 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.
Today there are many formulas investors put to use to grade stocks. Two of the less known formulas are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the S&P 500 by a significant amount (see the details here).
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to go over the latest hedge fund action surrounding Axis Capital Holdings Limited (NYSE:AXS).
What have hedge funds been doing with Axis Capital Holdings Limited (NYSE:AXS)?
At Q2's end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in AXS a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Richard S. Pzena's Pzena Investment Management has the most valuable position in Axis Capital Holdings Limited (NYSE:AXS), worth close to $274.4 million, corresponding to 1.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $120.9 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include David Paradice's Paradice Investment Management, Ken Griffin's Citadel Investment Group and Robert Pohly's Samlyn Capital. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to Axis Capital Holdings Limited (NYSE:AXS), around 5.32% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, designating 2.47 percent of its 13F equity portfolio to AXS.
As one would reasonably expect, some big names have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Axis Capital Holdings Limited (NYSE:AXS). Alyeska Investment Group had $12.1 million invested in the company at the end of the quarter. Chuck Royce's Royce & Associates also initiated a $12 million position during the quarter. The following funds were also among the new AXS investors: Andrew Kurita's Kettle Hill Capital Management, David Andre and Astro Teller's Cerebellum Capital, and Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management.
Let's now review hedge fund activity in other stocks similar to Axis Capital Holdings Limited (NYSE:AXS). These stocks are The Timken Company (NYSE:TKR), Strategic Education Inc (NASDAQ:STRA), PVH Corp (NYSE:PVH), Coty Inc (NYSE:COTY), Seaboard Corporation (NYSE:SEB), Semtech Corporation (NASDAQ:SMTC), and Change Healthcare Inc. (NASDAQ:CHNG). All of these stocks' market caps are closest to AXS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TKR,31,302095,1 STRA,21,274084,8 PVH,28,474978,10 COTY,26,135189,-7 SEB,14,119011,-1 SMTC,25,157701,8 CHNG,47,1112137,0 Average,27.4,367885,2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $662 million in AXS's case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 14 bullish hedge fund positions. Axis Capital Holdings Limited (NYSE:AXS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXS is 69.8. 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 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on AXS, though not to the same extent, as the stock returned 17.8% since the end of June and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.