We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Aaron’s, Inc. (NYSE:AAN), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Aaron’s, Inc. (NYSE:AAN) going to take off soon? The best stock pickers are buying. The number of long hedge fund bets inched up by 14 lately. Our calculations also showed that AAN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). AAN was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with AAN positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the new hedge fund action regarding Aaron’s, Inc. (NYSE:AAN).
How are hedge funds trading Aaron’s, Inc. (NYSE:AAN)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 78% from the third quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in AAN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Aaron’s, Inc. (NYSE:AAN), which was worth $55.1 million at the end of the third quarter. On the second spot was Scopus Asset Management which amassed $49 million worth of shares. Citadel Investment Group, Balyasny Asset Management, and Portolan 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 Rip Road Capital allocated the biggest weight to Aaron’s, Inc. (NYSE:AAN), around 11.15% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, setting aside 3.28 percent of its 13F equity portfolio to AAN.
As one would reasonably expect, key hedge funds were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, assembled the biggest position in Aaron’s, Inc. (NYSE:AAN). Intrinsic Edge Capital had $15.2 million invested in the company at the end of the quarter. Dennis Goldstein’s Rip Road Capital also initiated a $13.4 million position during the quarter. The other funds with brand new AAN positions are Brad Stephens’s Six Columns Capital, Brian Scudieri’s Kehrs Ridge Capital, and Richard Driehaus’s Driehaus Capital.
Let’s go over hedge fund activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). These stocks are Compania de Minas Buenaventura S.A.A. (NYSE:BVN), Bank of Hawaii Corporation (NYSE:BOH), Hancock Whitney Corporation (NASDAQ:HWC), and UniFirst Corp (NYSE:UNF). All of these stocks’ market caps are closest to AAN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BVN | 13 | 141024 | 5 |
| BOH | 16 | 142274 | 2 |
| HWC | 16 | 70660 | -4 |
| UNF | 21 | 159214 | -3 |
| Average | 16.5 | 128293 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $369 million in AAN’s case. UniFirst Corp (NYSE:UNF) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Aaron’s, Inc. (NYSE:AAN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately AAN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AAN were disappointed as the stock returned -58.3% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
