Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published 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 (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. Keeping this in mind, let’s analyze whether Advanced Energy Industries, Inc. (NASDAQ:AEIS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Advanced Energy Industries, Inc. (NASDAQ:AEIS) has experienced an increase in hedge fund sentiment lately. Our calculations also showed that AEIS 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).
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 S&P 500 ETFs by 41 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.
Chuck Royce of Royce & Associates
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 we’re going to review the new hedge fund action surrounding Advanced Energy Industries, Inc. (NASDAQ:AEIS).
How have hedgies been trading Advanced Energy Industries, Inc. (NASDAQ:AEIS)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AEIS 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.
Among these funds, Renaissance Technologies held the most valuable stake in Advanced Energy Industries, Inc. (NASDAQ:AEIS), which was worth $45.6 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $27.3 million worth of shares. Fisher Asset Management, Arrowstreet Capital, and D E Shaw 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 G2 Investment Partners Management allocated the biggest weight to Advanced Energy Industries, Inc. (NASDAQ:AEIS), around 1.48% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, designating 0.62 percent of its 13F equity portfolio to AEIS.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Clough Capital Partners, managed by Charles Clough, initiated the most outsized position in Advanced Energy Industries, Inc. (NASDAQ:AEIS). Clough Capital Partners had $7.3 million invested in the company at the end of the quarter. Josh Goldberg’s G2 Investment Partners Management also initiated a $4.6 million position during the quarter. The following funds were also among the new AEIS investors: Donald Sussman’s Paloma Partners, Qing Li’s Sciencast Management, and William Harnisch’s Peconic Partners LLC.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Advanced Energy Industries, Inc. (NASDAQ:AEIS) but similarly valued. We will take a look at Wolverine World Wide, Inc. (NYSE:WWW), TreeHouse Foods Inc. (NYSE:THS), American Equity Investment Life Holding (NYSE:AEL), and Extended Stay America Inc (NASDAQ:STAY). This group of stocks’ market valuations match AEIS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WWW | 23 | 119537 | 2 |
| THS | 27 | 237953 | 8 |
| AEL | 17 | 89434 | -2 |
| STAY | 35 | 496027 | 8 |
| Average | 25.5 | 235738 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $149 million in AEIS’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand American Equity Investment Life Holding (NYSE:AEL) is the least popular one with only 17 bullish hedge fund positions. Advanced Energy Industries, Inc. (NASDAQ:AEIS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 but beat the market by 5.5 percentage points. Unfortunately AEIS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AEIS investors were disappointed as the stock returned -35% during the same time period 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.
