Hedge Funds Have Never Been This Bullish On Affiliated Managers Group, Inc. (AMG)

Debasis Saha

Sat, Mar 28, 2020, 7:23 PM 6 min read

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Affiliated Managers Group, Inc. (NYSE:AMG).

Affiliated Managers Group, Inc. (NYSE:AMG) has seen an increase in hedge fund interest of late. AMG was in 38 hedge funds' portfolios at the end of December. There were 23 hedge funds in our database with AMG holdings at the end of the previous quarter. Our calculations also showed that AMG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 percentage points since March 2017 (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 stocks that are in our short portfolio.

[caption id="attachment_340075" align="aligncenter" width="400"]

Mason Hawkins of Southeastern Asset Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's take a glance at the key hedge fund action encompassing Affiliated Managers Group, Inc. (NYSE:AMG).

Hedge fund activity in Affiliated Managers Group, Inc. (NYSE:AMG)

Heading into the first quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 65% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AMG over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Southeastern Asset Management was the largest shareholder of Affiliated Managers Group, Inc. (NYSE:AMG), with a stake worth $118.7 million reported as of the end of September. Trailing Southeastern Asset Management was Lyrical Asset Management, which amassed a stake valued at $96.8 million. Renaissance Technologies, Ariel Investments, and Polar Capital 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 Wallace Capital Management allocated the biggest weight to Affiliated Managers Group, Inc. (NYSE:AMG), around 2.15% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, dishing out 1.98 percent of its 13F equity portfolio to AMG.

Now, specific money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Affiliated Managers Group, Inc. (NYSE:AMG). Arrowstreet Capital had $21.9 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $8 million investment in the stock during the quarter. The following funds were also among the new AMG investors: Noam Gottesman's GLG Partners, Paul Tudor Jones's Tudor Investment Corp, and Lei Zhang's Hillhouse Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to Affiliated Managers Group, Inc. (NYSE:AMG). These stocks are LogMeIn Inc (NASDAQ:LOGM), FTI Consulting, Inc. (NYSE:FCN), Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), and Southwest Gas Corporation (NYSE:SWX). All of these stocks' market caps resemble AMG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOGM,31,504016,-1 FCN,21,164212,0 OLLI,28,170863,5 SWX,23,200768,1 Average,25.75,259965,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $548 million in AMG's case. LogMeIn Inc (NASDAQ:LOGM) is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Affiliated Managers Group, Inc. (NYSE:AMG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately AMG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AMG were disappointed as the stock returned -39.2% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.