Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards AGNC Investment Corp. (NASDAQ:AGNC).
Is AGNC Investment Corp. (NASDAQ:AGNC) undervalued? Hedge funds are taking a bearish view. The number of long hedge fund bets retreated by 6 recently. Our calculations also showed that AGNC 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a gander at the new hedge fund action regarding AGNC Investment Corp. (NASDAQ:AGNC).
What does smart money think about AGNC Investment Corp. (NASDAQ:AGNC)?
At Q1's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in AGNC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in AGNC Investment Corp. (NASDAQ:AGNC) was held by Renaissance Technologies, which reported holding $114.8 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $73.1 million position. Other investors bullish on the company included Alyeska Investment Group, Millennium Management, and Citadel Investment Group.
Because AGNC Investment Corp. (NASDAQ:AGNC) has witnessed falling interest from the smart money, we can see that there is a sect of fund managers that decided to sell off their positions entirely by the end of the third quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth about $8.8 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund said goodbye to about $8.7 million worth. These transactions are important to note, as total hedge fund interest fell by 6 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to AGNC Investment Corp. (NASDAQ:AGNC). We will take a look at Targa Resources Corp (NYSE:TRGP), UGI Corp (NYSE:UGI), Avery Dennison Corporation (NYSE:AVY), and FactSet Research Systems Inc. (NYSE:FDS). This group of stocks' market values are similar to AGNC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRGP,23,334534,-12 UGI,20,441954,-4 AVY,23,314167,-5 FDS,18,250889,-2 Average,21,335386,-5.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $233 million in AGNC's case. Targa Resources Corp (NYSE:TRGP) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks AGNC Investment Corp. (NASDAQ:AGNC) is even less popular than FDS. Hedge funds dodged a bullet by taking a bearish stance towards AGNC. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AGNC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AGNC investors were disappointed as the stock returned -4.1% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.