Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Ameren Corporation (NYSE:AEE).
Ameren Corporation (NYSE:AEE) was in 18 hedge funds’ portfolios at the end of June. AEE has experienced a decrease in support from the world’s most elite money managers recently. There were 21 hedge funds in our database with AEE holdings at the end of the previous quarter. Our calculations also showed that AEE isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 peek at the latest hedge fund action encompassing Ameren Corporation (NYSE:AEE).
What does smart money think about Ameren Corporation (NYSE:AEE)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AEE over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Ameren Corporation (NYSE:AEE), which was worth $334.7 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $270.9 million worth of shares. Moreover, GLG Partners, Millennium Management, and Two Sigma Advisors were also bullish on Ameren Corporation (NYSE:AEE), allocating a large percentage of their portfolios to this stock.
Since Ameren Corporation (NYSE:AEE) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of funds who were dropping their entire stakes in the second quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of all the hedgies monitored by Insider Monkey, worth about $11.6 million in stock, and Bruce Kovner’s Caxton Associates LP was right behind this move, as the fund sold off about $8.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds in the second quarter.
Let’s also examine 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 POSCO (NYSE:PKX), Credicorp Ltd. (NYSE:BAP), Slack Technologies Inc (NYSE:WORK), and Omnicom Group Inc. (NYSE:OMC). This group of stocks’ market valuations match AEE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKX | 12 | 55467 | 1 |
| BAP | 20 | 758937 | 0 |
| WORK | 37 | 818197 | 37 |
| OMC | 23 | 656047 | 3 |
| Average | 23 | 572162 | 10.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $572 million. That figure was $739 million in AEE’s case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 12 bullish hedge fund positions. Ameren Corporation (NYSE:AEE) is not the least popular stock in this group but hedge fund interest is still below average. 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 AEE as the stock returned 7.3% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
