Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Aon plc (NYSE:AON) based on that data.
Aon plc (NYSE:AON) was in 51 hedge funds’ portfolios at the end of the fourth quarter of 2019. AON shareholders have witnessed an increase in hedge fund sentiment lately. There were 45 hedge funds in our database with AON positions at the end of the previous quarter. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Boykin Curry of Eagle Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the fresh hedge fund action surrounding Aon plc (NYSE:AON).
What does smart money think about Aon plc (NYSE:AON)?
At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the third quarter of 2019. On the other hand, there were a total of 40 hedge funds with a bullish position in AON 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 upping their stakes significantly (or already accumulated large positions).
Among these funds, Eagle Capital Management held the most valuable stake in Aon plc (NYSE:AON), which was worth $837.9 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $291.5 million worth of shares. Iridian Asset Management, First Pacific Advisors LLC, and Viking Global 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 Permian Investment Partners allocated the biggest weight to Aon plc (NYSE:AON), around 10.89% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, setting aside 7.92 percent of its 13F equity portfolio to AON.
As aggregate interest increased, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the most valuable position in Aon plc (NYSE:AON). Citadel Investment Group had $73 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $44.8 million position during the quarter. The other funds with brand new AON positions are D. E. Shaw’s D E Shaw, Ray Dalio’s Bridgewater Associates, and Sander Gerber’s Hudson Bay Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Aon plc (NYSE:AON) but similarly valued. These stocks are Kinder Morgan Inc (NYSE:KMI), Capital One Financial Corp. (NYSE:COF), DuPont de Nemours Inc (NYSE:DD), and Kimberly Clark Corporation (NYSE:KMB). This group of stocks’ market values are similar to AON’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KMI | 40 | 1360313 | 2 |
| COF | 50 | 2041230 | 3 |
| DD | 68 | 2372175 | 16 |
| KMB | 37 | 1058671 | -5 |
| Average | 48.75 | 1708097 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $1708 million. That figure was $2627 million in AON’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Kimberly Clark Corporation (NYSE:KMB) is the least popular one with only 37 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on AON, though not to the same extent, as the stock returned -13.9% during the first two months of 2020 (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
