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Were Hedge Funds Right About Dumping AGNC Investment Corp. (AGNC)?

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  • AGNCP

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is AGNC Investment Corp. (NASDAQ:AGNC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

AGNC Investment Corp. (NASDAQ:AGNC) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 37. AGNC shareholders have witnessed a decrease in support from the world's most elite money managers recently. There were 25 hedge funds in our database with AGNC holdings at the end of December. Our calculations also showed that AGNC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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. With all of this in mind we're going to check out the recent hedge fund action surrounding AGNC Investment Corp. (NASDAQ:AGNC).

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

Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in AGNC over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AGNC A Good Stock To Buy?
Is AGNC A Good Stock To Buy?

Among these funds, Canyon Capital Advisors held the most valuable stake in AGNC Investment Corp. (NASDAQ:AGNC), which was worth $60.8 million at the end of the fourth quarter. On the second spot was Clough Capital Partners which amassed $37.8 million worth of shares. Renaissance Technologies, Citadel Investment Group, and Ellington 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 Canyon Capital Advisors allocated the biggest weight to AGNC Investment Corp. (NASDAQ:AGNC), around 2.41% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, earmarking 1.69 percent of its 13F equity portfolio to AGNC.

Because AGNC Investment Corp. (NASDAQ:AGNC) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain "tier" of hedgies that decided to sell off their positions entirely in the first quarter. At the top of the heap, Daniel S. Och's OZ Management cut the biggest investment of all the hedgies followed by Insider Monkey, valued at about $34.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $25.6 million worth. These transactions are important to note, as total hedge fund interest fell by 7 funds in the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AGNC Investment Corp. (NASDAQ:AGNC) but similarly valued. We will take a look at Ralph Lauren Corporation (NYSE:RL), Nielsen Holdings plc (NYSE:NLSN), Zions Bancorporation, National Association (NASDAQ:ZION), Commerce Bancshares, Inc. (NASDAQ:CBSH), Store Capital Corporation (NYSE:STOR), RealPage, Inc. (NASDAQ:RP), and Arch Coal Inc (NYSE:ACI). This group of stocks' market caps match AGNC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RL,34,955242,-1 NLSN,34,1981675,0 ZION,24,193865,-4 CBSH,13,73163,-3 STOR,13,886150,1 RP,50,2495942,2 ACI,19,2807778,0 Average,26.7,1341974,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $1342 million. That figure was $168 million in AGNC's case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 13 bullish hedge fund positions. AGNC Investment Corp. (NASDAQ:AGNC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AGNC is 19.4. 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 negative signal and 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 surpassed the market again by 10.1 percentage points. Unfortunately AGNC wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AGNC investors were disappointed as the stock returned -1.9% 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 most of these stocks already outperformed the market in 2021.

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