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Hedge Fund Sentiment Is Stagnant On AAON, Inc. (AAON)

Reymerlyn Martin

Is AAON, Inc. (NASDAQ:AAON) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Hedge fund interest in AAON, Inc. (NASDAQ:AAON) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare AAON to other stocks including Fox Factory Holding Corp (NASDAQ:FOXF), PennyMac Financial Services Inc (NYSE:PFSI), and Granite Real Estate Investment Trust (NYSE:GRP) 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.

5 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_746893" align="aligncenter" width="1613"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

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. Now we're going to take a look at the latest hedge fund action encompassing AAON, Inc. (NASDAQ:AAON).

Hedge fund activity in AAON, Inc. (NASDAQ:AAON)

At Q3's end, a total of 6 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 AAON over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in AAON, Inc. (NASDAQ:AAON) was held by Citadel Investment Group, which reported holding $1.7 million worth of stock at the end of September. It was followed by Millennium Management with a $1.1 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Millennium Management allocated the biggest weight to AAON, Inc. (NASDAQ:AAON), around 0.0018% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, setting aside 0.0009 percent of its 13F equity portfolio to AAON.

Due to the fact that AAON, Inc. (NASDAQ:AAON) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who sold off their positions entirely by the end of the third quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dropped the largest stake of all the hedgies followed by Insider Monkey, worth close to $0.8 million in stock, and Roger Ibbotson's Zebra Capital Management was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are intriguing to say the least, 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 - not necessarily in the same industry as AAON, Inc. (NASDAQ:AAON) but similarly valued. We will take a look at Fox Factory Holding Corp (NASDAQ:FOXF), PennyMac Financial Services Inc (NYSE:PFSI), Granite Real Estate Investment Trust (NYSE:GRP), and Xenia Hotels & Resorts Inc (NYSE:XHR). All of these stocks' market caps are closest to AAON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOXF,12,21305,1 PFSI,15,105400,-1 GRP,11,81035,0 XHR,8,20048,-4 Average,11.5,56947,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $4 million in AAON's case. PennyMac Financial Services Inc (NYSE:PFSI) is the most popular stock in this table. On the other hand Xenia Hotels & Resorts Inc (NYSE:XHR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks AAON, Inc. (NASDAQ:AAON) is even less popular than XHR. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on AAON, though not to the same extent, as the stock returned 7.8% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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