As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about AU Optronics Corp. (NYSE:AUO) in this article.
AU Optronics Corp. (NYSE:AUO) was in 10 hedge funds' portfolios at the end of the third quarter of 2018. AUO investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 6 hedge funds in our database with AUO positions at the end of the previous quarter. Our calculations also showed that AUO 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 18 percentage points since May 2014 through December 3, 2018 (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.
Let's take a gander at the recent hedge fund action surrounding AU Optronics Corp. (NYSE:AUO).
What have hedge funds been doing with AU Optronics Corp. (NYSE:AUO)?
Heading into the fourth quarter of 2018, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in AUO at the beginning of this year. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of AU Optronics Corp. (NYSE:AUO), with a stake worth $51.6 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $1.2 million. Citadel Investment Group, Arrowstreet Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in AU Optronics Corp. (NYSE:AUO). Citadel Investment Group had $0.9 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $0.6 million position during the quarter. The other funds with brand new AUO positions are Ernest Chow and Jonathan Howe's Sensato Capital Management, Matthew Tewksbury's Stevens Capital Management, and Israel Englander's Millennium Management.
Let's also examine hedge fund activity in other stocks similar to AU Optronics Corp. (NYSE:AUO). These stocks are Kosmos Energy Ltd (NYSE:KOS), Apple Hospitality REIT Inc (NYSE:APLE), Companhia de Saneamento Basico (NYSE:SBS), and International Game Technology PLC (NYSE:IGT). All of these stocks' market caps match AUO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KOS,18,199526,3 APLE,10,94675,-2 SBS,11,156926,1 IGT,37,963167,2 Average,19,353574,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $56 million in AUO's case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand Apple Hospitality REIT Inc (NYSE:APLE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks AU Optronics Corp. (NYSE:AUO) is even less popular than APLE. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.