American International Group Inc (AIG) Fell Out Of Favor With Hedge Funds

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards American International Group Inc (NYSE:AIG).

Is American International Group Inc (NYSE:AIG) going to take off soon? Prominent investors were becoming less confident. The number of long hedge fund bets were trimmed by 2 in recent months. American International Group Inc (NYSE:AIG) was in 38 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 101. Our calculations also showed that AIG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind let’s go over the fresh hedge fund action regarding American International Group Inc (NYSE:AIG).

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

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2020. On the other hand, there were a total of 53 hedge funds with a bullish position in AIG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in American International Group Inc (NYSE:AIG) was held by Diamond Hill Capital, which reported holding $545.9 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $497 million position. Other investors bullish on the company included First Pacific Advisors LLC, Arrowstreet Capital, and Levin Easterly Partners. In terms of the portfolio weights assigned to each position Meru Capital allocated the biggest weight to American International Group Inc (NYSE:AIG), around 14.86% of its 13F portfolio. First Pacific Advisors LLC is also relatively very bullish on the stock, dishing out 5.19 percent of its 13F equity portfolio to AIG.

Because American International Group Inc (NYSE:AIG) has faced declining sentiment from the smart money, we can see that there exists a select few hedgies that slashed their full holdings by the end of the third quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $34.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $18.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to American International Group Inc (NYSE:AIG). These stocks are Genmab A/S (NASDAQ:GMAB), Hilton Worldwide Holdings Inc (NYSE:HLT), Palo Alto Networks Inc (NYSE:PANW), Roku, Inc. (NASDAQ:ROKU), LyondellBasell Industries NV (NYSE:LYB), Verisign, Inc. (NASDAQ:VRSN), and ZTO Express (Cayman) Inc. (NYSE:ZTO). This group of stocks’ market caps match AIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GMAB 18 203437 3
HLT 57 5109622 4
PANW 59 3197324 8
ROKU 59 1030571 18
LYB 31 604061 -1
VRSN 46 6088181 -1
ZTO 22 499840 4
Average 41.7 2390434 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.7 hedge funds with bullish positions and the average amount invested in these stocks was $2390 million. That figure was $1770 million in AIG’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 18 bullish hedge fund positions. American International Group Inc (NYSE:AIG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AIG is 38.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on AIG as the stock returned 37.2% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.

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