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Were Hedge Funds Right About Apartment Investment and Management Co. (AIV)?

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  • AIV

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Apartment Investment and Management Co. (NYSE:AIV).

Apartment Investment and Management Co. (NYSE:AIV) investors should be aware of an increase in activity from the world's largest hedge funds recently. Apartment Investment and Management Co. (NYSE:AIV) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 28. There were 17 hedge funds in our database with AIV positions at the end of the fourth quarter. Our calculations also showed that AIV isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital
Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a gander at the key hedge fund action regarding Apartment Investment and Management Co. (NYSE:AIV).

Do Hedge Funds Think AIV Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AIV over the last 23 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.

Is AIV A Good Stock To Buy?
Is AIV A Good Stock To Buy?

More specifically, Sessa Capital was the largest shareholder of Apartment Investment and Management Co. (NYSE:AIV), with a stake worth $38.1 million reported as of the end of March. Trailing Sessa Capital was Long Pond Capital, which amassed a stake valued at $36.6 million. Arrowstreet Capital, Millennium Management, and Marshall Wace LLP 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 Sessa Capital allocated the biggest weight to Apartment Investment and Management Co. (NYSE:AIV), around 1.47% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, setting aside 1.25 percent of its 13F equity portfolio to AIV.

Consequently, key money managers have been driving this bullishness. Long Pond Capital, managed by John Khoury, assembled the largest position in Apartment Investment and Management Co. (NYSE:AIV). Long Pond Capital had $36.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $11.3 million position during the quarter. The other funds with brand new AIV positions are John Overdeck and David Siegel's Two Sigma Advisors, Dmitry Balyasny's Balyasny Asset Management, and Noam Gottesman's GLG Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Apartment Investment and Management Co. (NYSE:AIV) but similarly valued. These stocks are Banc of California, Inc. (NASDAQ:BANC), U.S. Silica Holdings Inc (NYSE:SLCA), Golden Nugget Online Gaming, Inc. (NASDAQ:GNOG), CM Life Sciences, Inc. (NASDAQ:CMLFU), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Tellurian Inc. (NASDAQ:TELL), and National Western Life Group Inc. (NASDAQ:NWLI). This group of stocks' market values are closest to AIV's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BANC,14,51439,3 SLCA,18,191248,1 GNOG,10,34611,-6 CMLFU,6,37392,-6 BMTC,12,46863,-5 TELL,12,28482,5 NWLI,8,13057,1 Average,11.4,57585,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $157 million in AIV's case. U.S. Silica Holdings Inc (NYSE:SLCA) is the most popular stock in this table. On the other hand CM Life Sciences, Inc. (NASDAQ:CMLFU) is the least popular one with only 6 bullish hedge fund positions. Apartment Investment and Management Co. (NYSE:AIV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AIV is 75.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately AIV wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AIV were disappointed as the stock returned 9.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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