Is AEL Stock A Buy or Sell?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of American Equity Investment Life Holding Company (NYSE:AEL) based on that data.

Is AEL stock a buy? American Equity Investment Life Holding Company (NYSE:AEL) has seen an increase in hedge fund interest lately. American Equity Investment Life Holding Company (NYSE:AEL) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that AEL isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the fresh hedge fund action surrounding American Equity Investment Life Holding Company (NYSE:AEL).

Do Hedge Funds Think AEL Is A Good Stock To Buy Now?

At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 92% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in AEL a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in American Equity Investment Life Holding Company (NYSE:AEL), which was worth $41 million at the end of the fourth quarter. On the second spot was Paulson & Co which amassed $27.7 million worth of shares. Millennium Management, Interval Partners, and Arrowstreet Capital 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 Algert Global allocated the biggest weight to American Equity Investment Life Holding Company (NYSE:AEL), around 1.07% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, earmarking 0.97 percent of its 13F equity portfolio to AEL.

As industrywide interest jumped, key money managers have jumped into American Equity Investment Life Holding Company (NYSE:AEL) headfirst. Paulson & Co, managed by John Paulson, assembled the biggest position in American Equity Investment Life Holding Company (NYSE:AEL). Paulson & Co had $27.7 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $16.3 million position during the quarter. The following funds were also among the new AEL investors: D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as American Equity Investment Life Holding Company (NYSE:AEL) but similarly valued. We will take a look at Badger Meter, Inc. (NYSE:BMI), Old National Bancorp (NASDAQ:ONB), Nelnet, Inc. (NYSE:NNI), Uniti Group Inc. (NASDAQ:UNIT), Manchester United PLC (NYSE:MANU), Karuna Therapeutics, Inc. (NASDAQ:KRTX), and Compania Cervecerias Unidas S.A. (NYSE:CCU). All of these stocks’ market caps match AEL’s market cap.

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As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $172 million in AEL’s case. Badger Meter, Inc. (NYSE:BMI) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks American Equity Investment Life Holding Company (NYSE:AEL) is more popular among hedge funds. Our overall hedge fund sentiment score for AEL is 88.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on AEL as the stock returned 15.8% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.