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American International Group Inc (AIG): Are Hedge Funds Right About This Stock?

Nina Todic

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was American International Group Inc (NYSE:AIG).

Is American International Group Inc (NYSE:AIG) the right pick for your portfolio? The smart money is becoming hopeful. The number of bullish hedge fund positions inched up by 5 lately. Our calculations also showed that AIG isn't among the 30 most popular stocks among hedge funds. AIG was in 41 hedge funds' portfolios at the end of September. There were 36 hedge funds in our database with AIG holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

CITADEL INVESTMENT GROUP

Let's take a gander at the fresh hedge fund action regarding American International Group Inc (NYSE:AIG).

Hedge fund activity in American International Group Inc (NYSE:AIG)

At Q3's end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AIG over the last 13 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

No of Hedge Funds with AIG Positions

Of the funds tracked by Insider Monkey, Robert Rodriguez and Steven Romick's First Pacific Advisors LLC has the number one position in American International Group Inc (NYSE:AIG), worth close to $696.9 million, comprising 5% of its total 13F portfolio. Sitting at the No. 2 spot is Pzena Investment Management, managed by Richard S. Pzena, which holds a $473.2 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of John A. Levin's Levin Capital Strategies, and Phill Gross and Robert Atchinson's Adage Capital Management.

Now, specific money managers have jumped into American International Group Inc (NYSE:AIG) headfirst. Millennium Management, managed by Israel Englander, established the biggest position in American International Group Inc (NYSE:AIG). Millennium Management had $25.8 million invested in the company at the end of the quarter. Daniel Arbess's Perella Weinberg Partners also made a $3.3 million investment in the stock during the quarter. The other funds with brand new AIG positions are David Costen Haley's HBK Investments, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Bruce Kovner's Caxton Associates LP.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as American International Group Inc (NYSE:AIG) but similarly valued. We will take a look at Carnival Corporation (NYSE:CCL), Las Vegas Sands Corp. (NYSE:LVS), Humana Inc (NYSE:HUM), and Metlife Inc (NYSE:MET). This group of stocks' market valuations are similar to AIG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCL,36,981167,7 LVS,38,1350452,10 HUM,44,3204559,3 MET,24,1157827,-2 Average,35.5,1673501,4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.67 billion. That figure was $1.76 billion in AIG's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Metlife Inc (NYSE:MET) is the least popular one with only 24 bullish hedge fund positions. American International Group Inc (NYSE:AIG) 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. In this regard HUM might be a better candidate to consider a long position.

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

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