Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is AGCO Corporation (NYSE:AGCO) going to take off soon? The best stock pickers are selling. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that AGCO isn't among the 30 most popular stocks among hedge funds (view the video below). AGCO was in 25 hedge funds' portfolios at the end of June. There were 26 hedge funds in our database with AGCO positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action regarding AGCO Corporation (NYSE:AGCO).
How are hedge funds trading AGCO Corporation (NYSE:AGCO)?
At Q2's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AGCO over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of AGCO Corporation (NYSE:AGCO), with a stake worth $67.5 million reported as of the end of March. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $34.3 million. Impax Asset Management, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that AGCO Corporation (NYSE:AGCO) has witnessed falling interest from the smart money, we can see that there is a sect of fund managers who sold off their full holdings last quarter. Intriguingly, Clint Carlson's Carlson Capital said goodbye to the largest stake of the "upper crust" of funds watched by Insider Monkey, worth close to $25.4 million in stock. David Harding's fund, Winton Capital Management, also dumped its stock, about $17.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to AGCO Corporation (NYSE:AGCO). We will take a look at Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC), Cimarex Energy Co (NYSE:XEC), Ares Management Corporation (NYSE:ARES), and Arrow Electronics, Inc. (NYSE:ARW). This group of stocks' market values are similar to AGCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAC,4,105017,-3 XEC,27,1108459,-3 ARES,10,181196,-4 ARW,17,385523,-5 Average,14.5,445049,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $227 million in AGCO's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 4 bullish hedge fund positions. AGCO Corporation (NYSE:AGCO) 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 top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AGCO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AGCO were disappointed as the stock returned -2.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.