Is American Equity Investment Life Holding (AEL) Going to Burn These Hedge Funds?

Is American Equity Investment Life Holding (NYSE:AEL) a buy, sell, or hold? Money managers are getting less bullish. The number of bullish hedge fund bets shrunk by 1 recently.

To most market participants, hedge funds are perceived as worthless, old financial vehicles of the past. While there are more than 8000 funds with their doors open at the moment, we at Insider Monkey look at the moguls of this group, around 450 funds. It is estimated that this group controls the majority of the smart money’s total capital, and by tracking their best picks, we have unearthed a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as key, bullish insider trading sentiment is another way to parse down the financial markets. Just as you’d expect, there are plenty of stimuli for an insider to sell shares of his or her company, but just one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the impressive potential of this tactic if piggybackers understand what to do (learn more here).

With these “truths” under our belt, it’s important to take a look at the latest action surrounding American Equity Investment Life Holding (NYSE:AEL).

Hedge fund activity in American Equity Investment Life Holding (NYSE:AEL)

In preparation for this quarter, a total of 13 of the hedge funds we track were bullish in this stock, a change of -7% from one quarter earlier. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully.

Of the funds we track, Richard S. Pzena’s Pzena Investment Management had the most valuable position in American Equity Investment Life Holding (NYSE:AEL), worth close to $30.2 million, comprising 0.2% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $21.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedgies that are bullish include Ric Dillon’s Diamond Hill Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Andy Redleaf’s Whitebox Advisors.

Due to the fact that American Equity Investment Life Holding (NYSE:AEL) has experienced declining sentiment from the smart money, logic holds that there is a sect of hedgies who sold off their full holdings in Q1. At the top of the heap, Brian Taylor’s Pine River Capital Management dumped the largest position of the 450+ funds we track, comprising about $2.3 million in stock., and Israel Englander of Millennium Management was right behind this move, as the fund dropped about $0.9 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds in Q1.

How have insiders been trading American Equity Investment Life Holding (NYSE:AEL)?

Insider buying is best served when the company in question has seen transactions within the past six months. Over the latest half-year time period, American Equity Investment Life Holding (NYSE:AEL) has seen 1 unique insiders buying, and 4 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to American Equity Investment Life Holding (NYSE:AEL). These stocks are Citizens, Inc. (NYSE:CIA), Primerica, Inc. (NYSE:PRI), Symetra Financial Corporation (NYSE:SYA), and National Western Life Insurance Company (NASDAQ:NWLI). All of these stocks are in the life insurance industry and their market caps are closest to AEL’s market cap.

With the results exhibited by the aforementioned research, retail investors should always pay attention to hedge fund and insider trading activity, and American Equity Investment Life Holding (NYSE:AEL) shareholders fit into this picture quite nicely.

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