Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Aaron’s, Inc. (NYSE:AAN).
Aaron’s, Inc. (NYSE:AAN) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Our calculations also showed that AAN 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Managemnet
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. Let’s check out the fresh hedge fund action regarding Aaron’s, Inc. (NYSE:AAN).
What have hedge funds been doing with Aaron’s, Inc. (NYSE:AAN)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AAN over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Aaron’s, Inc. (NYSE:AAN), which was worth $64.5 million at the end of the third quarter. On the second spot was Scopus Asset Management which amassed $49 million worth of shares. Balyasny Asset Management, Portolan Capital Management, and AQR 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 Portolan Capital Management allocated the biggest weight to Aaron’s, Inc. (NYSE:AAN), around 3.8% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to AAN.
Due to the fact that Aaron’s, Inc. (NYSE:AAN) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds that slashed their positions entirely in the third quarter. It’s worth mentioning that David Harding’s Winton Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $11.2 million in stock, and Mark Coe’s Intrinsic Edge Capital was right behind this move, as the fund dropped about $3.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). We will take a look at argenx SE (NASDAQ:ARGX), Pure Storage, Inc. (NYSE:PSTG), Graphic Packaging Holding Company (NYSE:GPK), and Healthcare Realty Trust Incorporated (NYSE:HR). This group of stocks’ market valuations match AAN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARGX | 24 | 619897 | 2 |
| PSTG | 32 | 690528 | 9 |
| GPK | 33 | 500405 | 3 |
| HR | 12 | 44639 | 3 |
| Average | 25.25 | 463867 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $464 million. That figure was $310 million in AAN’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Healthcare Realty Trust Incorporated (NYSE:HR) is the least popular one with only 12 bullish hedge fund positions. Aaron’s, Inc. (NYSE:AAN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AAN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AAN investors were disappointed as the stock returned -9.1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
