Should You Avoid American Eagle Outfitters (AEO)?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards American Eagle Outfitters (NYSE:AEO).

American Eagle Outfitters (NYSE:AEO) investors should be aware of a decrease in enthusiasm from smart money recently. At the end of this article we will also compare AEO to other stocks including ITT Corp (NYSE:ITT), PS Business Parks Inc (NYSE:PSB), and Brookdale Senior Living, Inc. (NYSE:BKD) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, let’s take a gander at the fresh action regarding American Eagle Outfitters (NYSE:AEO).

Hedge fund activity in American Eagle Outfitters (NYSE:AEO)

At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 16% from the previous quarter. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in American Eagle Outfitters (NYSE:AEO). According to regulatory filings, the fund has a $66.9 million position in the stock, comprising 0.4% of its 13F portfolio. On Royce & Associates’s heels is Cliff Asness of AQR Capital Management, with a $62.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group.