Did Hedge Funds Make The Right Call On Athene Holding Ltd. (ATH) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Athene Holding Ltd. (NYSE:ATH) and determine whether hedge funds skillfully traded this stock.

Is Athene Holding Ltd. (NYSE:ATH) ready to rally soon? The best stock pickers were turning less bullish. The number of bullish hedge fund bets went down by 3 lately. Our calculations also showed that ATH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ATH was in 32 hedge funds’ portfolios at the end of the first quarter of 2020. There were 35 hedge funds in our database with ATH positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Christian Leone of Luxor Capital Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the latest hedge fund action surrounding Athene Holding Ltd. (NYSE:ATH).

How have hedgies been trading Athene Holding Ltd. (NYSE:ATH)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ATH over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Tiger Global Management LLC was the largest shareholder of Athene Holding Ltd. (NYSE:ATH), with a stake worth $185.3 million reported as of the end of September. Trailing Tiger Global Management LLC was Samlyn Capital, which amassed a stake valued at $132 million. AQR Capital Management, Luxor Capital Group, and Lakewood Capital Management 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 OCO Capital Partners allocated the biggest weight to Athene Holding Ltd. (NYSE:ATH), around 24.3% of its 13F portfolio. Serengeti Asset Management is also relatively very bullish on the stock, setting aside 14.88 percent of its 13F equity portfolio to ATH.

Since Athene Holding Ltd. (NYSE:ATH) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers who were dropping their positions entirely heading into Q4. It’s worth mentioning that Brian J. Higgins’s King Street Capital said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $91.3 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund cut about $38.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Athene Holding Ltd. (NYSE:ATH). We will take a look at Ingredion Incorporated (NYSE:INGR), Aramark (NYSE:ARMK), Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), and BorgWarner Inc. (NYSE:BWA). This group of stocks’ market values match ATH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $841 million in ATH’s case. BorgWarner Inc. (NYSE:BWA) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Athene Holding Ltd. (NYSE:ATH) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ATH as the stock returned 25.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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