American Eagle Outfitters (NYSE:AEO) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late.
If you’d ask most market participants, hedge funds are assumed to be worthless, outdated financial vehicles of yesteryear. While there are greater than 8000 funds trading at present, we look at the bigwigs of this group, around 450 funds. It is widely believed that this group controls the lion’s share of all hedge funds’ total capital, and by paying attention to their highest performing equity investments, we have deciphered a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (see the details here).
Equally as beneficial, optimistic insider trading sentiment is another way to parse down the world of equities. As the old adage goes: there are a variety of reasons for a corporate insider to sell shares of his or her company, but only one, very clear reason why they would buy. Various academic studies have demonstrated the useful potential of this method if piggybackers know where to look (learn more here).
With these “truths” under our belt, we’re going to take a peek at the recent action encompassing American Eagle Outfitters (NYSE:AEO).
How have hedgies been trading American Eagle Outfitters (NYSE:AEO)?
At year’s end, a total of 26 of the hedge funds we track were long in this stock, a change of -4% from one quarter earlier. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings considerably.
Of the funds we track, Royce & Associates, managed by Chuck Royce, holds the most valuable position in American Eagle Outfitters (NYSE:AEO). Royce & Associates has a $201 million position in the stock, comprising 0.7% of its 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $57 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedgies that hold long positions include Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and Donald Chiboucis’s Columbus Circle Investors.
Because American Eagle Outfitters (NYSE:AEO) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few fund managers who sold off their positions entirely heading into 2013. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest position of the “upper crust” of funds we watch, valued at close to $3 million in stock.. James Pallotta’s fund, Raptor Capital Management, also cut its stock, about $2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds heading into 2013.
What do corporate executives and insiders think about American Eagle Outfitters (NYSE:AEO)?
Insider purchases made by high-level executives is at its handiest when the primary stock in question has experienced transactions within the past 180 days. Over the latest six-month time period, American Eagle Outfitters (NYSE:AEO) has experienced zero unique insiders buying, and 6 insider sales (see the details of insider trades here).
With the returns exhibited by the aforementioned time-tested strategies, retail investors must always watch hedge fund and insider trading sentiment, and American Eagle Outfitters (NYSE:AEO) applies perfectly to this mantra.
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