Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of American Express Company (NYSE:AXP) based on that data.
American Express Company (NYSE:AXP) was in 48 hedge funds’ portfolios at the end of the third quarter of 2019. AXP investors should be aware of an increase in enthusiasm from smart money lately. There were 45 hedge funds in our database with AXP holdings at the end of the previous quarter. Our calculations also showed that AXP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
Warren Buffett of Berkshire Hathaway
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. Keeping this in mind let’s take a peek at the recent hedge fund action regarding American Express Company (NYSE:AXP).
What does smart money think about American Express Company (NYSE:AXP)?
Heading into the fourth quarter of 2019, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. By comparison, 50 hedge funds held shares or bullish call options in AXP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the most valuable position in American Express Company (NYSE:AXP). Berkshire Hathaway has a $17.9325 billion position in the stock, comprising 8.4% of its 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $1.6092 billion position; 1.8% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise John Armitage’s Egerton Capital Limited, Renaissance Technologies and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Aquamarine Capital Management allocated the biggest weight to American Express Company (NYSE:AXP), around 13.29% of its 13F portfolio. Berkshire Hathaway is also relatively very bullish on the stock, setting aside 8.35 percent of its 13F equity portfolio to AXP.
As one would reasonably expect, some big names were leading the bulls’ herd. Renaissance Technologies, created the biggest position in American Express Company (NYSE:AXP). Renaissance Technologies had $231.9 million invested in the company at the end of the quarter. Peter Seuss’s Prana Capital Management also initiated a $14.3 million position during the quarter. The other funds with brand new AXP positions are Gregg Moskowitz’s Interval Partners, Ray Dalio’s Bridgewater Associates, and David Costen Haley’s HBK Investments.
Let’s now review hedge fund activity in other stocks similar to American Express Company (NYSE:AXP). We will take a look at American Tower Corporation (NYSE:AMT), Diageo plc (NYSE:DEO), 3M Company (NYSE:MMM), and Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). All of these stocks’ market caps resemble AXP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMT | 46 | 3645628 | 4 |
| DEO | 22 | 930335 | 7 |
| MMM | 45 | 825815 | 5 |
| PBR | 30 | 2022999 | -2 |
| Average | 35.75 | 1856194 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1856 million. That figure was $21377 million in AXP’s case. American Tower Corporation (NYSE:AMT) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 22 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AXP, though not to the same extent, as the stock returned 32.5% during the same period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
