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Where Do Hedge Funds Stand On Arthur J. Gallagher & Co. (AJG)?

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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Arthur J. Gallagher & Co. (NYSE:AJG).

Hedge fund interest in Arthur J. Gallagher & Co. (NYSE:AJG) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AJG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Nasdaq, Inc. (NASDAQ:NDAQ), The Clorox Company (NYSE:CLX), and AmerisourceBergen Corporation (NYSE:ABC) to gather more data points.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds' moves today.

Minhua Zhang of Weld Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 take a peek at the key hedge fund action encompassing Arthur J. Gallagher & Co. (NYSE:AJG).

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

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in AJG 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.

Among these funds, Citadel Investment Group held the most valuable stake in Arthur J. Gallagher & Co. (NYSE:AJG), which was worth $77.9 million at the end of the fourth quarter. On the second spot was Adage Capital Management which amassed $45.3 million worth of shares. Arrowstreet Capital, Balyasny Asset Management, and Prospector Partners 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 Prospector Partners allocated the biggest weight to Arthur J. Gallagher & Co. (NYSE:AJG), around 2.02% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, designating 1.74 percent of its 13F equity portfolio to AJG.

Since Arthur J. Gallagher & Co. (NYSE:AJG) has faced a decline in interest from the smart money, we can see that there exists a select few hedgies who sold off their entire stakes heading into Q2. It's worth mentioning that Steve Cohen's Point72 Asset Management sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $3.1 million in stock. Mika Toikka's fund, AlphaCrest Capital Management, also said goodbye to its stock, about $0.4 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to Arthur J. Gallagher & Co. (NYSE:AJG). We will take a look at Nasdaq, Inc. (NASDAQ:NDAQ), The Clorox Company (NYSE:CLX), AmerisourceBergen Corporation (NYSE:ABC), ZTO Express (Cayman) Inc. (NYSE:ZTO), New Oriental Education & Technology Group Inc. (NYSE:EDU), Kansas City Southern (NYSE:KSU), and Nucor Corporation (NYSE:NUE). All of these stocks' market caps are similar to AJG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NDAQ,22,236137,-5 CLX,38,1195544,-1 ABC,43,1177164,-4 ZTO,15,659779,-2 EDU,45,2187946,2 KSU,49,1662353,0 NUE,25,191827,-4 Average,33.9,1044393,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $1044 million. That figure was $284 million in AJG's case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 15 bullish hedge fund positions. Arthur J. Gallagher & Co. (NYSE:AJG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AJG is 38.8. 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. 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 23.8% in 2021 through July 16th and beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on AJG, though not to the same extent, as the stock returned 12.5% since the end of Q1 (through July 16th) and outperformed the market.

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