Do Hedge Funds Love American Equity Investment Life Holding (AEL)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

American Equity Investment Life Holding (NYSE:AEL) shareholders have witnessed a decrease in hedge fund sentiment lately. AEL was in 13 hedge funds’ portfolios at the end of the third quarter of 2016. There were 17 hedge funds in our database with AEL positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), AlarmCom Hldg Inc (NASDAQ:ALRM), and Asbury Automotive Group, Inc. (NYSE:ABG) to gather more data points.

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.

Keeping this in mind, let’s take a peek at the key action regarding American Equity Investment Life Holding (NYSE:AEL).

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

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in AEL at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the largest position in American Equity Investment Life Holding (NYSE:AEL). Pzena Investment Management has a $45 million position in the stock, comprising 0.3% of its 13F portfolio. On Pzena Investment Management’s heels is D E Shaw, led by D. E. Shaw, which holds a $15.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Ric Dillon’s Diamond Hill Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. Intriguingly, Ike Kier and Ilya Zaides’s KG Funds Management sold off the biggest position of all the investors followed by Insider Monkey, comprising an estimated $4.9 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund cut about $3.6 million worth of shares.

Let’s check out hedge fund activity in other stocks similar to American Equity Investment Life Holding (NYSE:AEL). These stocks are Alliance Resource Partners, L.P. (NASDAQ:ARLP), AlarmCom Hldg Inc (NASDAQ:ALRM), Asbury Automotive Group, Inc. (NYSE:ABG), and Calavo Growers, Inc. (NASDAQ:CVGW). This group of stocks’ market values resemble AEL’s market value.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $87 million in AEL’s case. Asbury Automotive Group, Inc. (NYSE:ABG) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 7 bullish hedge fund positions. American Equity Investment Life Holding (NYSE:AEL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ABG might be a better candidate to consider taking a long position in.

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