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Is AAON, Inc. (AAON) Going To Burn These Hedge Funds ?

Nina Todic

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of AAON, Inc. (NASDAQ:AAON) and see how the stock is affected by the recent hedge fund activity.

AAON, Inc. (NASDAQ:AAON) has seen an increase in hedge fund interest in recent months. Our calculations also showed that AAON isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Roger Ibbotson Zebra Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action surrounding AAON, Inc. (NASDAQ:AAON).

How are hedge funds trading AAON, Inc. (NASDAQ:AAON)?

At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AAON over the last 16 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with AAON Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in AAON, Inc. (NASDAQ:AAON), worth close to $2.4 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $1.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish consist of Dmitry Balyasny's Balyasny Asset Management, Cliff Asness's AQR Capital Management and Roger Ibbotson's Zebra Capital Management.

Consequently, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most outsized position in AAON, Inc. (NASDAQ:AAON). Millennium Management had $1.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $0.8 million investment in the stock during the quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as AAON, Inc. (NASDAQ:AAON) but similarly valued. We will take a look at ManTech International Corporation (NASDAQ:MANT), Green Dot Corporation (NYSE:GDOT), Trinity Industries, Inc. (NYSE:TRN), and Lions Gate Entertainment Corp. (NYSE:LGF-B). This group of stocks' market caps match AAON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MANT,11,11360,-1 GDOT,18,242981,-9 TRN,23,664414,-5 LGF-B,15,238109,-1 Average,16.75,289216,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $6 million in AAON's case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand ManTech International Corporation (NASDAQ:MANT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks AAON, Inc. (NASDAQ:AAON) is even less popular than MANT. Hedge funds dodged a bullet by taking a bearish stance towards AAON. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AAON wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AAON investors were disappointed as the stock returned -8.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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

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