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Do Hedge Funds Love Ambac Financial Group, Inc. (AMBC)?

·6 min read

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Ambac Financial Group, Inc. (NYSE:AMBC) based on those filings.

Ambac Financial Group, Inc. (NYSE:AMBC) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 27. AMBC investors should pay attention to a decrease in support from the world's most elite money managers of late. There were 18 hedge funds in our database with AMBC positions at the end of the fourth quarter. Our calculations also showed that AMBC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

According to most shareholders, hedge funds are assumed to be underperforming, outdated financial tools of the past. While there are over 8000 funds trading at present, Our experts look at the top tier of this club, around 850 funds. Most estimates calculate that this group of people orchestrate the lion's share of the smart money's total asset base, and by observing their matchless investments, Insider Monkey has identified a number of investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Emanuel J. Friedman
Emanuel J. Friedman

Emanuel Friedman of EJF Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we're going to view the recent hedge fund action regarding Ambac Financial Group, Inc. (NYSE:AMBC).

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

At the end of March, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AMBC over the last 23 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Arctis Global held the most valuable stake in Ambac Financial Group, Inc. (NYSE:AMBC), which was worth $29.7 million at the end of the fourth quarter. On the second spot was EJF Capital which amassed $23 million worth of shares. CQS Cayman LP, Bracebridge Capital, and D E Shaw 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 Arctis Global allocated the biggest weight to Ambac Financial Group, Inc. (NYSE:AMBC), around 4.2% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, designating 1.66 percent of its 13F equity portfolio to AMBC.

Since Ambac Financial Group, Inc. (NYSE:AMBC) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Steve Cohen's Point72 Asset Management said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $8.1 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dropped its stock, about $4.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.

Let's now take a look at hedge fund activity in other stocks similar to Ambac Financial Group, Inc. (NYSE:AMBC). We will take a look at Taysha Gene Therapies, Inc. (NASDAQ:TSHA), USA Technologies, Inc. (NASDAQ:USAT), Pzena Investment Management Inc (NYSE:PZN), HarborOne Bancorp, Inc. (NASDAQ:HONE), Achilles Therapeutics plc (NASDAQ:ACHL), Tristate Capital Holdings Inc (NASDAQ:TSC), and ScanSource, Inc. (NASDAQ:SCSC). This group of stocks' market values are closest to AMBC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSHA,7,44545,-4 USAT,18,301744,-4 PZN,7,12133,4 HONE,14,38344,0 ACHL,16,185210,16 TSC,18,57402,2 SCSC,11,66261,1 Average,13,100806,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $93 million in AMBC's case. USA Technologies, Inc. (NASDAQ:USAT) is the most popular stock in this table. On the other hand Taysha Gene Therapies, Inc. (NASDAQ:TSHA) is the least popular one with only 7 bullish hedge fund positions. Ambac Financial Group, Inc. (NYSE:AMBC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMBC is 68.3. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately AMBC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AMBC were disappointed as the stock returned -16.5% since the end of March (through 7/23) 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.