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American Express Company (AXP): Are Hedge Funds Right About This Stock?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds’ top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like American Express Company (NYSE:AXP).

American Express Company (NYSE:AXP) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that AXP isn’t among the 30 most popular stocks among hedge funds.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

John Armitage Egerton Capital

John Armitage of Egerton Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the latest hedge fund action surrounding American Express Company (NYSE:AXP).

What have hedge funds been doing with American Express Company (NYSE:AXP)?

At the end of the third quarter, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 50 hedge funds with a bullish position in AXP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AXP_nov2019

Among these funds, Berkshire Hathaway held the most valuable stake in American Express Company (NYSE:AXP), which was worth $17932.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $1609.2 million worth of shares. Egerton Capital Limited, Renaissance Technologies, and D E Shaw 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 Aquamarine Capital Management allocated the biggest weight to American Express Company (NYSE:AXP), around 13.29% of its portfolio. Berkshire Hathaway is also relatively very bullish on the stock, setting aside 8.35 percent of its 13F equity portfolio to AXP.

As aggregate interest increased, key hedge funds have jumped into American Express Company (NYSE:AXP) headfirst. Renaissance Technologies, assembled the largest position in American Express Company (NYSE:AXP). Renaissance Technologies had $231.9 million invested in the company at the end of the quarter. Peter Seuss’s Prana Capital Management also initiated a $14.3 million position during the quarter. The following funds were also among the new AXP investors: Gregg Moskowitz’s Interval Partners, Ray Dalio’s Bridgewater Associates, and David Costen Haley’s HBK Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American Express Company (NYSE:AXP) but similarly valued. We will take a look at American Tower Corporation (REIT) (NYSE:AMT), Diageo plc (NYSE:DEO), 3M Company (NYSE:MMM), and Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). This group of stocks’ market valuations resemble AXP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMT 46 3645628 4
DEO 22 930335 7
MMM 45 825815 5
PBR 30 2022999 -2
Average 35.75 1856194 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1856 million. That figure was $21377 million in AXP’s case. American Tower Corporation (REIT) (NYSE:AMT) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks American Express Company (NYSE:AXP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately AXP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AXP were disappointed as the stock returned 1% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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