Is AeroVironment, Inc. (NASDAQ:AVAV) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is AeroVironment, Inc. (NASDAQ:AVAV) the right investment to pursue these days? The smart money is selling. The number of long hedge fund bets shrunk by 2 in recent months. Our calculations also showed that AVAV isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="1613"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's analyze the latest hedge fund action surrounding AeroVironment, Inc. (NASDAQ:AVAV).
What does smart money think about AeroVironment, Inc. (NASDAQ:AVAV)?
At Q3's end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in AVAV a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in AeroVironment, Inc. (NASDAQ:AVAV), which was worth $14.9 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $11.7 million worth of shares. Royce & Associates, Citadel Investment Group, and PDT Partners 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 PDT Partners allocated the biggest weight to AeroVironment, Inc. (NASDAQ:AVAV), around 0.08% of its 13F portfolio. Springbok Capital is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to AVAV.
Judging by the fact that AeroVironment, Inc. (NASDAQ:AVAV) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers who sold off their positions entirely in the third quarter. Intriguingly, Noam Gottesman's GLG Partners cut the largest stake of all the hedgies tracked by Insider Monkey, comprising about $1.6 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also dumped its stock, about $1.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as AeroVironment, Inc. (NASDAQ:AVAV) but similarly valued. These stocks are Amerisafe, Inc. (NASDAQ:AMSF), Silicon Motion Technology Corp. (NASDAQ:SIMO), Ebix Inc (NASDAQ:EBIX), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks' market values are closest to AVAV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMSF,12,39800,0 SIMO,14,150011,2 EBIX,16,105290,-2 MNTA,17,230449,-2 Average,14.75,131388,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $36 million in AVAV's case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand Amerisafe, Inc. (NASDAQ:AMSF) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks AeroVironment, Inc. (NASDAQ:AVAV) is even less popular than AMSF. Hedge funds clearly dropped the ball on AVAV 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on AVAV as the stock returned 14.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.