U.S. Markets close in 3 hrs 36 mins

Hedge Funds Have Never Been This Bullish On American Express Company (AXP)

Abigail Fisher

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards American Express Company (NYSE:AXP).

Is American Express Company (NYSE:AXP) ready to rally soon? Investors who are in the know are taking a bullish view. The number of long hedge fund bets went up by 7 lately. Our calculations also showed that AXP 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.

Third Point

Let's take a look at the recent hedge fund action surrounding American Express Company (NYSE:AXP).

What have hedge funds been doing with American Express Company (NYSE:AXP)?

At the end of the first quarter, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AXP over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AXP_june2019

More specifically, Berkshire Hathaway was the largest shareholder of American Express Company (NYSE:AXP), with a stake worth $16571 million reported as of the end of March. Trailing Berkshire Hathaway was Egerton Capital Limited, which amassed a stake valued at $1024 million. Fisher Asset Management, GAMCO Investors, and Third Point were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key hedge funds have jumped into American Express Company (NYSE:AXP) headfirst. Theleme Partners, managed by Patrick Degorce, established the most outsized position in American Express Company (NYSE:AXP). Theleme Partners had $114.2 million invested in the company at the end of the quarter. James Parsons's Junto Capital Management also initiated a $82.3 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Ricky Sandler's Eminence Capital, and Daniel Johnson's Gillson Capital.

Let's now review hedge fund activity in other stocks similar to American Express Company (NYSE:AXP). These stocks are Lowe's Companies, Inc. (NYSE:LOW), General Electric Company (NYSE:GE), American Tower Corporation (REIT) (NYSE:AMT), and Itau Unibanco Holding SA (NYSE:ITUB). This group of stocks' market valuations are closest to AXP's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LOW,56,5256913,3 GE,54,3675745,-5 AMT,39,3021510,-2 ITUB,21,1086598,3 Average,42.5,3260192,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $3260 million. That figure was $19791 million in AXP's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks American Express Company (NYSE:AXP) is more popular among hedge funds. 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 AXP as the stock returned 7.2% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

Related Content