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 (read our latest 10 coronavirus predictions).
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 take a look at whether Ameren Corporation (NYSE:AEE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Ameren Corporation (NYSE:AEE) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that AEE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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.
Phill Gross of Adage Capital Management
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. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Ameren Corporation (NYSE:AEE).
Hedge fund activity in Ameren Corporation (NYSE:AEE)
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in AEE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Ameren Corporation (NYSE:AEE), worth close to $351.1 million, corresponding to 0.3% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $351 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions comprise Israel Englander’s Millennium Management, Stuart J. Zimmer’s Zimmer Partners and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Shelter Harbor Advisors allocated the biggest weight to Ameren Corporation (NYSE:AEE), around 13% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, earmarking 7.44 percent of its 13F equity portfolio to AEE.
Since Ameren Corporation (NYSE:AEE) has experienced declining sentiment from the smart money, logic holds that there exists a select few hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $16.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $12.8 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ameren Corporation (NYSE:AEE) but similarly valued. We will take a look at Western Digital Corporation (NASDAQ:WDC), Zoom Video Communications, Inc. (NASDAQ:ZM), Incyte Corporation (NASDAQ:INCY), and Sea Limited (NYSE:SE). This group of stocks’ market caps match AEE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WDC | 49 | 869922 | 9 |
| ZM | 28 | 858177 | -5 |
| INCY | 46 | 3965633 | 11 |
| SE | 76 | 3911536 | 7 |
| Average | 49.75 | 2401317 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.75 hedge funds with bullish positions and the average amount invested in these stocks was $2401 million. That figure was $1679 million in AEE’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Zoom Video Communications, Inc. (NASDAQ:ZM) is the least popular one with only 28 bullish hedge fund positions. Ameren Corporation (NYSE:AEE) is not the least popular stock in this group but hedge fund interest is still below 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on AEE as the stock returned -13.6% during the same time period and outperformed the market by an even larger margin.
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.
