We can judge whether Advanced Energy Industries, Inc. (NASDAQ:AEIS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Advanced Energy Industries, Inc. (NASDAQ:AEIS) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that AEIS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's go over the fresh hedge fund action regarding Advanced Energy Industries, Inc. (NASDAQ:AEIS).
How are hedge funds trading Advanced Energy Industries, Inc. (NASDAQ:AEIS)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in AEIS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Advanced Energy Industries, Inc. (NASDAQ:AEIS), which was worth $56.8 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $22.2 million worth of shares. GLG Partners, Fisher Asset Management, and Arrowstreet Capital 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 Divisar Capital allocated the biggest weight to Advanced Energy Industries, Inc. (NASDAQ:AEIS), around 0.5% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to AEIS.
As aggregate interest increased, some big names were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Advanced Energy Industries, Inc. (NASDAQ:AEIS). Arrowstreet Capital had $5.6 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also made a $3.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace, Peter Muller's PDT Partners, and David Harding's Winton Capital Management.
Let's go over hedge fund activity in other stocks similar to Advanced Energy Industries, Inc. (NASDAQ:AEIS). We will take a look at American Equity Investment Life Holding Company (NYSE:AEL), Applied Industrial Technologies, Inc. (NYSE:AIT), Advanced Drainage Systems, Inc. (NYSE:WMS), and Mimecast Limited (NASDAQ:MIME). This group of stocks' market values match AEIS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEL,18,87521,1 AIT,20,106164,2 WMS,24,335640,7 MIME,36,669132,10 Average,24.5,299614,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $122 million in AEIS's case. Mimecast Limited (NASDAQ:MIME) is the most popular stock in this table. On the other hand American Equity Investment Life Holding Company (NYSE:AEL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Advanced Energy Industries, Inc. (NASDAQ:AEIS) is even less popular than AEL. Hedge funds clearly dropped the ball on AEIS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 AEIS as the stock returned 11.8% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.