Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Keeping this in mind, let’s take a look whether American International Group Inc (NYSE:AIG) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
American International Group Inc (NYSE:AIG) has experienced a decrease in enthusiasm from smart money lately. Our calculations also showed that AIG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 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.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a peek at the key hedge fund action surrounding American International Group Inc (NYSE:AIG).
Hedge fund activity in American International Group Inc (NYSE:AIG)
Heading into the first quarter of 2020, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the third quarter of 2019. By comparison, 39 hedge funds held shares or bullish call options in AIG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American International Group Inc (NYSE:AIG) was held by First Pacific Advisors LLC, which reported holding $680.8 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $550.1 million position. Other investors bullish on the company included Diamond Hill Capital, Levin Easterly Partners, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to American International Group Inc (NYSE:AIG), around 13.31% of its 13F portfolio. Capital Returns Management is also relatively very bullish on the stock, dishing out 8.29 percent of its 13F equity portfolio to AIG.
Because American International Group Inc (NYSE:AIG) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of money managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Michael Moriarty’s Teewinot Capital Advisers dropped the largest stake of all the hedgies monitored by Insider Monkey, worth about $6.3 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $6.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to American International Group Inc (NYSE:AIG). These stocks are Exelon Corporation (NASDAQ:EXC), Pinduoduo Inc. (NASDAQ:PDD), Koninklijke Philips NV (NYSE:PHG), and Baidu, Inc. (NASDAQ:BIDU). This group of stocks’ market valuations are similar to AIG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXC | 36 | 1822287 | -2 |
| PDD | 32 | 1682011 | 1 |
| PHG | 9 | 179950 | 1 |
| BIDU | 60 | 2832866 | 12 |
| Average | 34.25 | 1629279 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1629 million. That figure was $2870 million in AIG’s case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 9 bullish hedge fund positions. American International Group Inc (NYSE:AIG) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately AIG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AIG were disappointed as the stock returned -36.1% during the same time period 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.
