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How Did Aon plc (AON) Compare Against Hedge Fund Darlings in 2019?

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Aon plc (NYSE:AON).

Aon plc (NYSE:AON) has seen an increase in support from the world's most elite money managers of late. Our calculations also showed that AON 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 investors, hedge funds are seen as slow, old financial tools of yesteryear. While there are over 8000 funds trading at present, We choose to focus on the leaders of this club, approximately 750 funds. Most estimates calculate that this group of people manage most of the smart money's total capital, and by shadowing their highest performing equity investments, Insider Monkey has identified a few investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually 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_30647" align="alignnone" width="592"] Boykin Curry of Eagle Capital[/caption]

Boykin Curry EAGLE CAPITAL MANAGEMENT

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 regarding Aon plc (NYSE:AON).

Hedge fund activity in Aon plc (NYSE:AON)

Heading into the fourth quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the second quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in AON a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is AON A Good Stock To Buy?

The largest stake in Aon plc (NYSE:AON) was held by Eagle Capital Management, which reported holding $853.4 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $276.6 million position. Other investors bullish on the company included First Pacific Advisors, Iridian Asset Management, and Viking Global. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to Aon plc (NYSE:AON), around 8.84% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, dishing out 8.52 percent of its 13F equity portfolio to AON.

As aggregate interest increased, specific money managers have been driving this bullishness. Carlson Capital, managed by Clint Carlson, initiated the most valuable position in Aon plc (NYSE:AON). Carlson Capital had $17 million invested in the company at the end of the quarter. Peter Seuss's Prana Capital Management also made a $14.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Poole's Echo Street Capital Management, Jay Genzer's Thames Capital Management, and David E. Shaw's D E Shaw.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Aon plc (NYSE:AON) but similarly valued. We will take a look at The Progressive Corporation (NYSE:PGR), Illumina, Inc. (NASDAQ:ILMN), Baxter International Inc. (NYSE:BAX), and Las Vegas Sands Corp. (NYSE:LVS). This group of stocks' market valuations are closest to AON's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PGR,48,1562764,-2 ILMN,37,1183062,-6 BAX,33,2445089,-1 LVS,39,1983338,0 Average,39.25,1793563,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1794 million. That figure was $2479 million in AON's case. The Progressive Corporation (NYSE:PGR) is the most popular stock in this table. On the other hand Baxter International Inc. (NYSE:BAX) is the least popular one with only 33 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AON as the stock returned 44.3% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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