Were Hedge Funds Right About AeroVironment, Inc. (AVAV)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards AeroVironment, Inc. (NASDAQ:AVAV).

AeroVironment, Inc. (NASDAQ:AVAV) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of March. Our calculations also showed that AVAV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare AVAV to other stocks including Stepan Company (NYSE:SCL), First Interstate Bancsystem Inc (NASDAQ:FIBK), and Group 1 Automotive, Inc. (NYSE:GPI) to get a better sense of its popularity.

Today there are tons of indicators stock traders use to analyze publicly traded companies. A couple of the most under-the-radar indicators are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outpace their index-focused peers by a healthy amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding AeroVironment, Inc. (NASDAQ:AVAV).

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

At first quarter’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AVAV over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, ARK Investment Management was the largest shareholder of AeroVironment, Inc. (NASDAQ:AVAV), with a stake worth $65.1 million reported as of the end of March. Trailing ARK Investment Management was Fisher Asset Management, which amassed a stake valued at $23.5 million. Heard Capital, Marshall Wace LLP, and Driehaus 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 Heard Capital allocated the biggest weight to AeroVironment, Inc. (NASDAQ:AVAV), around 3.71% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to AVAV.

Seeing as AeroVironment, Inc. (NASDAQ:AVAV) has faced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their entire stakes heading into Q2. It’s worth mentioning that Renaissance Technologies dropped the largest investment of the 750 funds followed by Insider Monkey, comprising close to $3.1 million in stock. Peter Algert’s fund, Algert Global, also sold off its stock, about $0.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to AeroVironment, Inc. (NASDAQ:AVAV). We will take a look at Stepan Company (NYSE:SCL), First Interstate Bancsystem Inc (NASDAQ:FIBK), Group 1 Automotive, Inc. (NYSE:GPI), Kennedy-Wilson Holdings Inc (NYSE:KW), MorphoSys AG (NASDAQ:MOR), Overstock.com, Inc. (NASDAQ:OSTK), and National Storage Affiliates Trust (NYSE:NSA). This group of stocks’ market values resemble AVAV’s market value.

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As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $137 million in AVAV’s case. Overstock.com, Inc. (NASDAQ:OSTK) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 2 bullish hedge fund positions. AeroVironment, Inc. (NASDAQ:AVAV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVAV is 57.4. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately AVAV wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AVAV investors were disappointed as the stock returned -16.9% since the end of March (through 7/23) 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 most of these stocks already outperformed the market in 2021.

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

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