Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Aon plc (NYSE:AON) was in 39 hedge funds' portfolios at the end of the first quarter of 2019. AON has experienced a decrease in hedge fund sentiment of late. There were 40 hedge funds in our database with AON positions at the end of the previous quarter. Our calculations also showed that AON isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Let's take a look at the new hedge fund action surrounding Aon plc (NYSE:AON).
What does the smart money think about Aon plc (NYSE:AON)?
At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AON over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Aon plc (NYSE:AON), with a stake worth $811.4 million reported as of the end of March. Trailing Eagle Capital Management was First Pacific Advisors LLC, which amassed a stake valued at $286.9 million. Cantillon Capital Management, Permian Investment Partners, and BloombergSen were also very fond of the stock, giving the stock large weights in their portfolios.
Because Aon plc (NYSE:AON) has witnessed declining sentiment from the smart money, logic holds that there exists a select few fund managers that elected to cut their full holdings in the third quarter. It's worth mentioning that David Cohen and Harold Levy's Iridian Asset Management sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $208.7 million in stock. Guy Shahar's fund, DSAM Partners, also sold off its stock, about $16.3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Aon plc (NYSE:AON) but similarly valued. These stocks are Metlife Inc (NYSE:MET), Energy Transfer L.P. (NYSE:ET), Marathon Petroleum Corp (NYSE:MPC), and ABB Ltd (NYSE:ABB). This group of stocks' market valuations match AON's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MET,31,1200695,7 ET,28,765288,-2 MPC,65,3263062,-7 ABB,15,347062,2 Average,34.75,1394027,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1394 million. That figure was $2337 million in AON's case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 15 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AON as the stock returned 6.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.