We recently compiled a list of the Diamond Hill Capital’s Top 10 Stock Picks.In this article, we are going to take a look at where American International Group, Inc. (NYSE:AIG) stands against Diamond Hill Capital's other stock picks.
Heather Brilliant’s Diamond Hill Capital is a Columbus, Ohio-based investment management firm founded in 1997 by Ric Dillon, who managed the company until 2019. Mr. Dillon and several members of his team broke off to form VELA Investment Management that year, which led to the addition of Heather Brilliant to the CEO position at Diamond Hill.
Ms. Brilliant earned an MBA from the University of Chicago Booth School of Business, as well as a degree in economics from Northwestern University. She has since accrued more than two decades of experience in the domestic and international investment markets, including nearly 14 years at Morningstar that culminated in her managing the company’s Australasia division, as well as a successful run as CEO, Americas at First State Investments.
Ms. Brilliant has taken major strides to refocus Diamond Hill in her five years at the helm of the company, closing its private asset management division and several of its investment strategies that didn’t align with the fund’s core value investing ethos. Meanwhile, the fund has bulked up its focus on long-term value and fixed income investing by reworking and growing its teams in those disciplines, and adjusting its operational processes and expectations.
In a November interview on Bloomberg’s The Close, Ms. Brilliant noted that in the current environment of earnings volatility, her team is focused on uncovering high-quality businesses trading at fair valuations. When asked about her team’s approach to investing in broader sectors experiencing secular tailwinds, specifically the utilities sector, Ms. Brilliant said that while the “story” of power-hungry AI is a good one, she was unconvinced by the valuations in the space, noting that she instead likes some of the pricing trends in the insurance space.
That was evidenced by the fund’s large-cap strategy (Q3 investor letter here) adding two big insurance names to its portfolio in Q3, a quarter in which the fund returned 7.84% net of fees, beating the benchmark Russell 1000 Index by 1.76 percentage points. That lifted its year-to-date returns to 14.7% net of fees, ahead of last year’s 13.7% return. The large-cap strategy returned 25.7% in 2021 and 32.2% in 2019.
The Diamond Hill Small Cap Fund (Q3 2024 investor letter here) also added some insurance names to its portfolio during Q3 and rattled off a solid quarter of 8.43% gains, though that trailed the benchmark Russell 2000 Index by 84 basis points. The fund has returned just under 10% annually since inception, beating the Russell 2000 by nearly 200 basis points.
There’s been relatively little volatility in Diamond Hill’s overall sector allocations over the past year, with finance stocks continuing to account for nearly a quarter of the fund’s 13F portfolio, which was valued at $24.7 billion on September 30, up from $23.4 billion at the end of June. Consumer discretionary, healthcare, and industrials stocks were next at 15.9%, 14.1%, and 13.7% exposure respectively. Tech stocks rounded out the fund’s top 5 sectors at 8.6% exposure.
Our Methodology
The following data is gathered from Diamond Hill Capital’s latest 13F filing with the SEC.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q3 2024 reporting period.
A professional advisor helping a client with an insurance policy, highlighting the company’s attention to customer service.
Value of Diamond Hill Capital’s13F Position (9/30/2024): $1.0 billion
Number of Hedge Fund Shareholders (9/30/2024): 51
American International Group, Inc. (NYSE:AIG) remained Diamond Hill Capital’s top stock for the 16th straight quarter as of the end of Q3. The fund raised its stake in the investment bank by 6% during the quarter, pushing the value of its position to just over $1 billion. Several other hedge funds grew bearish on AIG during Q3 however, as there was a 20% dip in ownership of the stock.
American International Group, Inc. (NYSE:AIG) delivered strong Q3 results, growing after-tax income per diluted share by 18% year-over-year to $1.23, beating estimates by more than 10%. Despite that performance, AIG shares traded down post earnings, in part due to lowered net interest income guidance for Q4. The insurer also guided for a 10% return on equity this year, which Wells Fargo projects will rise to 10.3% next year and 10.8% in 2026. Wells has a $76 price target and ‘Equal Weight’ rating on AIG shares.
It’s no wonder Diamond Hill loves AIG, as the stock was one of the Diamond Hill Large Cap Strategy’s top performers during the first quarter of this year, as relayed in the fund’s Q1 2024 investor letter:
“Among our top individual contributors in Q1 were American International Group, Inc. (NYSE:AIG) and HCA Healthcare. Property and casualty insurance company AIG made more progress selling its stake in life insurer Corebridge in the quarter while repositioning its portfolio via several divestitures — lending support to our thesis that the high-quality management team will continue executing a turnaround in the business.”
Overall AIG ranks 1st on our list of Diamond Hill Capital's stock picks. While we acknowledge the potential of AIG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AIG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
