How Did American Electric Power Company, Inc. (AEP) Perform In Comparison to Hedge Fund Favorites in 2019?
We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like American Electric Power Company, Inc. (NYSE:AEP).
Is American Electric Power Company, Inc. (NYSE:AEP) a marvelous stock to buy now? The smart money is taking an optimistic view. The number of long hedge fund bets rose by 4 in recent months. Our calculations also showed that AEP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
According to most market participants, hedge funds are seen as underperforming, outdated financial tools of the past. While there are more than 8000 funds trading today, Our researchers look at the crème de la crème of this group, around 750 funds. These investment experts control the lion's share of the smart money's total asset base, and by shadowing their highest performing investments, Insider Monkey has formulated numerous investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_26073" align="alignnone" width="600"]
Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's check out the latest hedge fund action encompassing American Electric Power Company, Inc. (NYSE:AEP).
How are hedge funds trading American Electric Power Company, Inc. (NYSE:AEP)?
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AEP over the last 17 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of American Electric Power Company, Inc. (NYSE:AEP), with a stake worth $455.5 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $440.7 million. AQR Capital Management, Millennium Management, and Zimmer 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 Blackstart Capital allocated the biggest weight to American Electric Power Company, Inc. (NYSE:AEP), around 6.56% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, designating 2.77 percent of its 13F equity portfolio to AEP.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Zimmer Partners, managed by Stuart J. Zimmer, initiated the largest position in American Electric Power Company, Inc. (NYSE:AEP). Zimmer Partners had $61.9 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital also initiated a $12.5 million position during the quarter. The other funds with brand new AEP positions are Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Andrew Weiss's Weiss Asset Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as American Electric Power Company, Inc. (NYSE:AEP) but similarly valued. These stocks are Lloyds Banking Group PLC (NYSE:LYG), Applied Materials, Inc. (NASDAQ:AMAT), Relx PLC (NYSE:RELX), and Phillips 66 (NYSE:PSX). All of these stocks' market caps are closest to AEP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYG,7,52469,-1 AMAT,50,2356178,6 RELX,6,105678,3 PSX,36,1315132,-3 Average,24.75,957364,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $957 million. That figure was $1769 million in AEP's case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. American Electric Power Company, Inc. (NYSE:AEP) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AEP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AEP were disappointed as the stock returned 29.5% in 2019 (through December 23rd) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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