We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Affiliated Managers Group, Inc. (NYSE:AMG).
Affiliated Managers Group, Inc. (NYSE:AMG) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. AMG was in 27 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 32 hedge funds in our database with AMG positions at the end of the previous quarter. Our calculations also showed that AMG isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a peek at the recent hedge fund action surrounding Affiliated Managers Group, Inc. (NYSE:AMG).
How have hedgies been trading Affiliated Managers Group, Inc. (NYSE:AMG)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in AMG a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Affiliated Managers Group, Inc. (NYSE:AMG) was held by Southeastern Asset Management, which reported holding $179.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $93.8 million position. Other investors bullish on the company included Ariel Investments, Millennium Management, and Chiron Investment Management.
Since Affiliated Managers Group, Inc. (NYSE:AMG) has experienced declining sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of money managers who sold off their positions entirely by the end of the third quarter. Interestingly, John Brennan's Sirios Capital Management said goodbye to the biggest position of the 700 funds tracked by Insider Monkey, totaling an estimated $65.7 million in stock. Peter Seuss's fund, Prana Capital Management, also dumped its stock, about $22 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Affiliated Managers Group, Inc. (NYSE:AMG) but similarly valued. We will take a look at Genpact Limited (NYSE:G), StoneCo Ltd. (NASDAQ:STNE), Equitrans Midstream Corporation (NYSE:ETRN), and Lincoln Electric Holdings, Inc. (NASDAQ:LECO). This group of stocks' market valuations are closest to AMG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position G,22,428841,1 STNE,20,755177,20 ETRN,28,966738,28 LECO,19,282772,0 Average,22.25,608382,12.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $608 million. That figure was $505 million in AMG's case. Equitrans Midstream Corporation (NYSE:ETRN) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 19 bullish hedge fund positions. Affiliated Managers Group, Inc. (NYSE:AMG) is not the most popular stock in this group but hedge fund interest is still above average. 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 the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A small number of hedge funds were also right about betting on AMG, though not to the same extent, as the stock returned 17.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.