Are Investors Right to Be Bullish on American Equity Investment Life Holding (AEL)?

While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, lower commodity prices and the economic turmoil in China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding American Equity Investment Life Holding (NYSE:AEL).

American Equity Investment Life Holding (NYSE:AEL) has seen an increase in hedge fund sentiment recently and could be found in 24 hedge funds’ portfolios at the end of the third quarter of 2015. In comparison, there were 12 hedge funds in our database with American Equity Investment Life Holding (NYSE:AEL) positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), Columbia Banking System Inc (NASDAQ:COLB), and Werner Enterprises, Inc. (NASDAQ:WERN) to gather more data points.

To the average investor, there are a large number of metrics shareholders have at their disposal to analyze stocks. A couple of the less known metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite investment managers can trounce the market by a healthy amount (see the details here).

Keeping this in mind, we’re going to take a gander at the new action regarding American Equity Investment Life Holding (NYSE:AEL).

How are hedge funds trading American Equity Investment Life Holding (NYSE:AEL)?

At the end of September, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 100% from one quarter earlier. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Anand Parekh’s Alyeska Investment Group has the number one position in American Equity Investment Life Holding (NYSE:AEL), worth close to $74.3 million, comprising 0.9% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $63.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Now, key hedge funds have jumped into American Equity Investment Life Holding (NYSE:AEL) headfirst. Point72 Asset Management, family office of Steve Cohen, established the biggest position in American Equity Investment Life Holding (NYSE:AEL). The fund had $10.1 million invested in the company at the end of the quarter. Anton Schutz’s Mendon Capital Advisors also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s now take a look at the hedge fund activity in other stocks – not necessarily in the same industry as American Equity Investment Life Holding (NYSE:AEL) but similarly valued. We will take a look at GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), Columbia Banking System Inc (NASDAQ:COLB), Werner Enterprises, Inc. (NASDAQ:WERN), and Shanda Games Limited(ADR) (NASDAQ:GAME). This group of stocks’ market valuations is similar to American Equity Investment Life Holding (NYSE:AEL)’s market valuation.

As you can see, these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) is the most popular stock in this table, with 19 hedge funds holding shares, whereas Shanda Games Limited(ADR) (NASDAQ:GAME) was in the portfolio of only 7 hedge funds. American Equity Investment Life Holding (NYSE:AEL) outranks these stocks, both in terms of the number of hedge funds holdings’ and the aggregate value of hedge fund positions, which stands at $243 million, which might suggest that the stock is worth to be added to your portfolio. Still, we would suggest  an in-depth analysis and further research before initiating a position.