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Hedge Funds Have Never Been This Bullish On American Financial Group, Inc. (AFG)

Reymerlyn Martin

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards American Financial Group, Inc. (NYSE:AFG).

American Financial Group, Inc. (NYSE:AFG) has seen an increase in activity from the world's largest hedge funds in recent months. AFG was in 30 hedge funds' portfolios at the end of the first quarter of 2019. There were 29 hedge funds in our database with AFG positions at the end of the previous quarter. Our calculations also showed that AFG isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.

Roger Ibbotson Zebra Capital

We're going to take a gander at the latest hedge fund action surrounding American Financial Group, Inc. (NYSE:AFG).

Hedge fund activity in American Financial Group, Inc. (NYSE:AFG)

At Q1's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AFG over the last 15 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

AFG_jun2019

Of the funds tracked by Insider Monkey, Cliff Asness's AQR Capital Management has the most valuable position in American Financial Group, Inc. (NYSE:AFG), worth close to $75.4 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $72.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism comprise Ken Griffin's Citadel Investment Group, Thomas Rigo's Bishop Rock Capital and D. E. Shaw's D E Shaw.

Consequently, some big names were breaking ground themselves. Lomas Capital Management, managed by Daniel Lascano, initiated the most outsized position in American Financial Group, Inc. (NYSE:AFG). Lomas Capital Management had $13.5 million invested in the company at the end of the quarter. Peter Seuss's Prana Capital Management also made a $3.9 million investment in the stock during the quarter. The following funds were also among the new AFG investors: Brandon Haley's Holocene Advisors, Roger Ibbotson's Zebra Capital Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's now take a look at hedge fund activity in other stocks similar to American Financial Group, Inc. (NYSE:AFG). We will take a look at Teledyne Technologies Incorporated (NYSE:TDY), Pearson PLC (NYSE:PSO), Allegion plc (NYSE:ALLE), and Tata Motors Limited (NYSE:TTM). This group of stocks' market values are closest to AFG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDY,28,596871,8 PSO,4,13571,-1 ALLE,21,496364,-4 TTM,12,115269,3 Average,16.25,305519,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $317 million in AFG's case. Teledyne Technologies Incorporated (NYSE:TDY) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks American Financial Group, Inc. (NYSE:AFG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AFG as the stock returned 4.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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