We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of The AES Corporation (NYSE:AES).
The AES Corporation (NYSE:AES) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds' portfolios at the end of December. At the end of this article we will also compare AES to other stocks including BanColombia S.A. (NYSE:CIB), Alliant Energy Corporation (NYSE:LNT), and IDEX Corporation (NYSE:IEX) to get a better sense of its popularity. 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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to check out the new hedge fund action surrounding The AES Corporation (NYSE:AES).
What does smart money think about The AES Corporation (NYSE:AES)?
Heading into the first quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AES over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The AES Corporation (NYSE:AES) was held by Renaissance Technologies, which reported holding $269.8 million worth of stock at the end of September. It was followed by ValueAct Capital with a $86.5 million position. Other investors bullish on the company included Millennium Management, Electron Capital Partners, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Axel Capital Management allocated the biggest weight to The AES Corporation (NYSE:AES), around 12.76% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, dishing out 6.76 percent of its 13F equity portfolio to AES.
Since The AES Corporation (NYSE:AES) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that elected to cut their full holdings by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest position of all the hedgies watched by Insider Monkey, totaling an estimated $2.3 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund cut about $0.9 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to The AES Corporation (NYSE:AES). We will take a look at BanColombia S.A. (NYSE:CIB), Alliant Energy Corporation (NYSE:LNT), IDEX Corporation (NYSE:IEX), and SVB Financial Group (NASDAQ:SIVB). This group of stocks' market valuations resemble AES's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIB,14,214226,3 LNT,28,560221,5 IEX,23,487828,2 SIVB,35,740028,-7 Average,25,500576,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $501 million. That figure was $695 million in AES's case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 14 bullish hedge fund positions. The AES Corporation (NYSE:AES) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately AES wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AES were disappointed as the stock returned -44.4% during the same time period 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.