Is Alleghany Corporation (NYSE:Y) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Alleghany Corporation (NYSE:Y) has seen an increase in hedge fund interest lately. Our calculations also showed that Y isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. We're going to view the fresh hedge fund action regarding Alleghany Corporation (NYSE:Y).
What does smart money think about Alleghany Corporation (NYSE:Y)?
At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards Y over the last 16 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Polar Capital held the most valuable stake in Alleghany Corporation (NYSE:Y), which was worth $83.6 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $60.1 million worth of shares. Moreover, AQR Capital Management, Renaissance Technologies, and Millennium Management were also bullish on Alleghany Corporation (NYSE:Y), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds have jumped into Alleghany Corporation (NYSE:Y) headfirst. Select Equity Group, managed by Robert Joseph Caruso, initiated the largest position in Alleghany Corporation (NYSE:Y). Select Equity Group had $11.3 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new Y investors: Matthew Tewksbury's Stevens Capital Management, Joel Greenblatt's Gotham Asset Management, and Tom Russo's Gardner Russo & Gardner.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Alleghany Corporation (NYSE:Y) but similarly valued. We will take a look at Avantor, Inc. (NYSE:AVTR), Mylan N.V. (NASDAQ:MYL), Zendesk Inc (NYSE:ZEN), and Torchmark Corporation (NYSE:TMK). All of these stocks' market caps match Y's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVTR,30,1081752,30 MYL,30,1601252,0 ZEN,50,1843391,-3 TMK,19,808569,-2 Average,32.25,1333741,6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1334 million. That figure was $362 million in Y's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Torchmark Corporation (NYSE:TMK) is the least popular one with only 19 bullish hedge fund positions. Alleghany Corporation (NYSE:Y) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on Y as the stock returned 17.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.