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Did Hedge Funds Drop The Ball On Ameren Corporation (AEE) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Ameren Corporation (NYSE:AEE) and determine whether hedge funds skillfully traded this stock.

Is Ameren Corporation (NYSE:AEE) a healthy stock for your portfolio? Money managers were becoming less hopeful. The number of long hedge fund positions retreated by 10 recently. Our calculations also showed that AEE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AEE was in 21 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with AEE positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

hedge fund research

George Soros of Soros Fund Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing Ameren Corporation (NYSE:AEE).

What have hedge funds been doing with Ameren Corporation (NYSE:AEE)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in AEE 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.

The largest stake in Ameren Corporation (NYSE:AEE) was held by Renaissance Technologies, which reported holding $397.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $112.1 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Point State Capital allocated the biggest weight to Ameren Corporation (NYSE:AEE), around 0.94% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 0.81 percent of its 13F equity portfolio to AEE.

Because Ameren Corporation (NYSE:AEE) has faced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes in the first quarter. It’s worth mentioning that Clint Carlson’s Carlson Capital dumped the biggest position of all the hedgies monitored by Insider Monkey, totaling an estimated $57.8 million in stock. Peter J. Hark’s fund, Shelter Harbor Advisors, also dumped its stock, about $25 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 10 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ameren Corporation (NYSE:AEE) but similarly valued. We will take a look at Fastenal Company (NASDAQ:FAST), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Fortis Inc. (NYSE:FTS), and Wipro Limited (NYSE:WIT). This group of stocks’ market caps are similar to AEE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FAST 34 588054 1
IBKR 22 779568 -7
FTS 15 347098 1
WIT 7 56972 -5
Average 19.5 442923 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $443 million. That figure was $724 million in AEE’s case. Fastenal Company (NASDAQ:FAST) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Ameren Corporation (NYSE:AEE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately AEE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AEE were disappointed as the stock returned 9.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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