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Should I Buy Axis Capital Holdings Limited (AXS)?

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·6 min read
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At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Axis Capital Holdings Limited (NYSE:AXS) makes for a good investment right now.

Is Axis Capital Holdings Limited (NYSE:AXS) worth your attention right now? Hedge funds were becoming more confident. The number of long hedge fund bets inched up by 2 recently. Axis Capital Holdings Limited (NYSE:AXS) was in 23 hedge funds' portfolios at the end of March. The all time high for this statistic is 35. Our calculations also showed that AXS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 21 hedge funds in our database with AXS holdings at the end of December.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to view the latest hedge fund action encompassing Axis Capital Holdings Limited (NYSE:AXS).

Do Hedge Funds Think AXS Is A Good Stock To Buy Now?

At the end of March, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AXS over the last 23 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, Pzena Investment Management was the largest shareholder of Axis Capital Holdings Limited (NYSE:AXS), with a stake worth $347.5 million reported as of the end of March. Trailing Pzena Investment Management was Paradice Investment Management, which amassed a stake valued at $83.8 million. Renaissance Technologies, Royce & Associates, and Wallace Capital Management 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 Paradice Investment Management allocated the biggest weight to Axis Capital Holdings Limited (NYSE:AXS), around 4.03% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 2.96 percent of its 13F equity portfolio to AXS.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in Axis Capital Holdings Limited (NYSE:AXS). Balyasny Asset Management had $6.3 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.3 million position during the quarter. The following funds were also among the new AXS investors: Greg Eisner's Engineers Gate Manager, Jinghua Yan's TwinBeech Capital, and Minhua Zhang's Weld Capital Management.

Let's check out hedge fund activity in other stocks similar to Axis Capital Holdings Limited (NYSE:AXS). These stocks are Black Hills Corporation (NYSE:BKH), WD-40 Company (NASDAQ:WDFC), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Yamana Gold Inc. (NYSE:AUY), Advanced Energy Industries, Inc. (NASDAQ:AEIS), JBG SMITH Properties (NYSE:JBGS), and Certara, Inc. (NASDAQ:CERT). This group of stocks' market caps are similar to AXS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKH,18,89974,-1 WDFC,14,176222,-1 ARNA,33,822587,-6 AUY,21,157547,1 AEIS,23,107038,1 JBGS,11,207465,-5 CERT,12,149884,-7 Average,18.9,244388,-2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $596 million in AXS's case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 11 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 54. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately AXS wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AXS were disappointed as the stock returned 2.2% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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