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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to American Equity Investment Life Holding Company (NYSE:AEL) changed recently.
Is AEL a good stock to buy now? American Equity Investment Life (NYSE:AEL) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that AEL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare AEL to other stocks including PacWest Bancorp (NASDAQ:PACW), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), and Compass Minerals International, Inc. (NYSE:CMP) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most investors, hedge funds are perceived as slow, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, We look at the upper echelon of this club, about 850 funds. It is estimated that this group of investors have their hands on the lion's share of the hedge fund industry's total asset base, and by keeping track of their unrivaled investments, Insider Monkey has brought to light numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's go over the fresh hedge fund action regarding American Equity Investment Life Holding Company (NYSE:AEL).
Do Hedge Funds Think AEL Is A Good Stock To Buy Now?
At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in AEL over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American Equity Investment Life Holding Company (NYSE:AEL) was held by Pzena Investment Management, which reported holding $25.5 million worth of stock at the end of September. It was followed by Millennium Management with a $3.8 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and Algert Coldiron Investors. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to American Equity Investment Life Holding Company (NYSE:AEL), around 0.48% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to AEL.
Due to the fact that American Equity Investment Life Holding Company (NYSE:AEL) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedge funds who were dropping their positions entirely in the third quarter. It's worth mentioning that D. E. Shaw's D E Shaw said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $1.1 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dumped about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as American Equity Investment Life Holding Company (NYSE:AEL) but similarly valued. We will take a look at PacWest Bancorp (NASDAQ:PACW), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), Compass Minerals International, Inc. (NYSE:CMP), Corcept Therapeutics Incorporated (NASDAQ:CORT), Red Rock Resorts, Inc. (NASDAQ:RRR), Alliance Data Systems Corporation (NYSE:ADS), and Spirit AeroSystems Holdings, Inc. (NYSE:SPR). This group of stocks' market caps are similar to AEL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PACW,28,247992,4 AXNX,28,371489,2 CMP,14,67272,-4 CORT,22,238362,-1 RRR,29,361467,-1 ADS,36,427033,7 SPR,31,468951,-6 Average,26.9,311795,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $37 million in AEL's case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Compass Minerals International, Inc. (NYSE:CMP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks American Equity Investment Life Holding Company (NYSE:AEL) is even less popular than CMP. Our overall hedge fund sentiment score for AEL is 20. 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. Hedge funds clearly dropped the ball on AEL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on AEL as the stock returned 29% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.