While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding AGNC Investment Corp. (NASDAQ:AGNC).

Is AGNC Investment Corp. (NASDAQ:AGNC) going to take off soon? The smart money was becoming more confident. The number of long hedge fund bets improved by 10 in recent months. AGNC Investment Corp. (NASDAQ:AGNC) was in 37 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AGNC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 27 hedge funds in our database with AGNC positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

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. 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 58 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.

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Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a gander at the key hedge fund action regarding AGNC Investment Corp. (NASDAQ:AGNC).

At the end of June, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in AGNC a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in AGNC Investment Corp. (NASDAQ:AGNC) was held by OZ Management, which reported holding $99.3 million worth of stock at the end of June. It was followed by D E Shaw with a $63.1 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Clough Capital Partners. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to AGNC Investment Corp. (NASDAQ:AGNC), around 7.57% of its 13F portfolio. One Fin Capital Management is also relatively very bullish on the stock, designating 5.3 percent of its 13F equity portfolio to AGNC.

As industrywide interest jumped, key hedge funds have jumped into AGNC Investment Corp. (NASDAQ:AGNC) headfirst. OZ Management, managed by Daniel S. Och, initiated the biggest position in AGNC Investment Corp. (NASDAQ:AGNC). OZ Management had $99.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $38.9 million position during the quarter. The following funds were also among the new AGNC investors: Charles Clough's Clough Capital Partners, Robert Henry Lynch's Aristeia Capital, and Renaissance Technologies.

Let's now take a look at hedge fund activity in other stocks similar to AGNC Investment Corp. (NASDAQ:AGNC). These stocks are AptarGroup, Inc. (NYSE:ATR), Companhia de Saneamento Bsico do Estado de So Paulo - SABESP (NYSE:SBS), WEX Inc (NYSE:WEX), Five9 Inc (NASDAQ:FIVN), Chemed Corporation (NYSE:CHE), Albertsons Companies, Inc. (NYSE:ACI), and Ascendis Pharma A/S (NASDAQ:ASND). This group of stocks' market values are similar to AGNC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATR,26,210604,6 SBS,10,270233,2 WEX,24,399174,-11 FIVN,44,1130157,11 CHE,26,351128,1 ACI,30,2773996,30 ASND,31,2509539,-2 Average,27.3,1092119,5.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $1092 million. That figure was $458 million in AGNC's case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Companhia de Saneamento Bsico do Estado de So Paulo - SABESP (NYSE:SBS) is the least popular one with only 10 bullish hedge fund positions. AGNC Investment Corp. (NASDAQ:AGNC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AGNC is 79.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on AGNC as the stock returned 12.1% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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