It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in American Electric Power Company, Inc. (NYSE:AEP).
American Electric Power Company, Inc. (NYSE:AEP) has seen an increase in activity from the world’s largest hedge funds recently. AEP was in 31 hedge funds’ portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with AEP holdings at the end of the previous quarter. Our calculations also showed that AEP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Paul Tudor Jones of Tudor Investment Corp
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action encompassing American Electric Power Company, Inc. (NYSE:AEP).
What does smart money think about American Electric Power Company, Inc. (NYSE:AEP)?
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AEP over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in American Electric Power Company, Inc. (NYSE:AEP), worth close to $455.5 million, corresponding to 0.4% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $440.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and Stuart J. Zimmer’s Zimmer Partners. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to American Electric Power Company, Inc. (NYSE:AEP), around 6.56% of its portfolio. Centenus Global Management is also relatively very bullish on the stock, designating 2.77 percent of its 13F equity portfolio to AEP.
Consequently, some big names were leading the bulls’ herd. Zimmer Partners, managed by Stuart J. Zimmer, assembled the most valuable position in American Electric Power Company, Inc. (NYSE:AEP). Zimmer Partners had $61.9 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital also initiated a $12.5 million position during the quarter. The other funds with new positions in the stock are Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Andrew Weiss’s Weiss Asset Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks similar to American Electric Power Company, Inc. (NYSE:AEP). We will take a look at Lloyds Banking Group PLC (NYSE:LYG), Applied Materials, Inc. (NASDAQ:AMAT), Relx PLC (NYSE:RELX), and Phillips 66 (NYSE:PSX). This group of stocks’ market valuations are similar to AEP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LYG | 7 | 52469 | -1 |
| AMAT | 50 | 2356178 | 6 |
| RELX | 6 | 105678 | 3 |
| PSX | 36 | 1315132 | -3 |
| Average | 24.75 | 957364 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $957 million. That figure was $1769 million in AEP’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. American Electric Power Company, Inc. (NYSE:AEP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AEP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AEP were disappointed as the stock returned -1.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
