Should I Avoid Aon plc (AON)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Aon plc (NYSE:AON).

Aon plc (NYSE:AON) has experienced a decrease in hedge fund sentiment in recent months. Aon plc (NYSE:AON) was in 47 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 72. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to review the key hedge fund action surrounding Aon plc (NYSE:AON).

Rajiv Jain of GQG Partners

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

At third quarter’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. On the other hand, there were a total of 52 hedge funds with a bullish position in AON 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.

Of the funds tracked by Insider Monkey, Eagle Capital Management, managed by Boykin Curry, holds the largest position in Aon plc (NYSE:AON). Eagle Capital Management has a $1.8137 billion position in the stock, comprising 5.3% of its 13F portfolio. The second most bullish fund manager is Berkshire Hathaway, led by Warren Buffett, holding a $1.2562 billion position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Rajiv Jain’s GQG Partners and William von Mueffling’s Cantillon Capital Management. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to Aon plc (NYSE:AON), around 10.21% of its 13F portfolio. Night Owl Capital Management is also relatively very bullish on the stock, dishing out 8.47 percent of its 13F equity portfolio to AON.

Because Aon plc (NYSE:AON) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that elected to cut their full holdings last quarter. At the top of the heap, Andreas Halvorsen’s Viking Global cut the largest stake of the 750 funds followed by Insider Monkey, worth an estimated $693.1 million in stock. John Smith Clark’s fund, Southpoint Capital Advisors, also cut its stock, about $179.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 21 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Aon plc (NYSE:AON) but similarly valued. These stocks are Colgate-Palmolive Company (NYSE:CL), Illumina, Inc. (NASDAQ:ILMN), Waste Management, Inc. (NYSE:WM), Autodesk, Inc. (NASDAQ:ADSK), Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), and Workday Inc (NASDAQ:WDAY). This group of stocks’ market values match AON’s market value.

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As you can see these stocks had an average of 45.1 hedge funds with bullish positions and the average amount invested in these stocks was $2702 million. That figure was $6005 million in AON’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Banco Santander, S.A. (NYSE:SAN) is the least popular one with only 14 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AON is 32. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately AON wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AON were disappointed as the stock returned 3.7% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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