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Advanced Energy Industries, Inc. (AEIS): Are Hedge Funds Right About This Stock?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Advanced Energy Industries, Inc. (NASDAQ:AEIS) has seen a decrease in activity from the world’s largest hedge funds recently. AEIS was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with AEIS positions at the end of the previous quarter. Our calculations also showed that AEIS isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the fresh hedge fund action encompassing Advanced Energy Industries, Inc. (NASDAQ:AEIS).

Hedge fund activity in Advanced Energy Industries, Inc. (NASDAQ:AEIS)

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AEIS over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with AEIS Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in Advanced Energy Industries, Inc. (NASDAQ:AEIS), worth close to $71 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Royce & Associates, managed by Chuck Royce, which holds a $30.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions include Noam Gottesman’s GLG Partners, Ken Fisher’s Fisher Asset Management and Steven Baughman’s Divisar Capital.

Due to the fact that Advanced Energy Industries, Inc. (NASDAQ:AEIS) has experienced declining sentiment from hedge fund managers, it’s safe to say that there were a few funds who sold off their positions entirely in the second quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $7.2 million in stock, and Jeffrey Moskowitz’s Harvey Partners was right behind this move, as the fund dropped about $1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Advanced Energy Industries, Inc. (NASDAQ:AEIS) but similarly valued. We will take a look at Artisan Partners Asset Management Inc (NYSE:APAM), Trustmark Corporation (NASDAQ:TRMK), InVitae Corporation (NYSE:NVTA), and Commercial Metals Company (NYSE:CMC). All of these stocks’ market caps resemble AEIS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APAM 15 202840 -1
TRMK 14 28099 3
NVTA 16 328969 -12
CMC 17 289611 6
Average 15.5 212380 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $139 million in AEIS’s case. Commercial Metals Company (NYSE:CMC) is the most popular stock in this table. On the other hand Trustmark Corporation (NASDAQ:TRMK) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Advanced Energy Industries, Inc. (NASDAQ:AEIS) is even less popular than TRMK. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AEIS, though not to the same extent, as the stock returned 2% during the third quarter and outperformed the market as well.

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

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