Did Hedge Funds Get Aon plc (AON) Right?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Aon plc (NYSE:AON) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Aon plc (NYSE:AON) has seen a decrease in enthusiasm from smart money of late. Aon plc (NYSE:AON) was in 47 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 72. There were 68 hedge funds in our database with AON holdings at the end of June. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s check out the latest hedge fund action regarding Aon plc (NYSE:AON).

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

At the end of September, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in AON 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.

According to Insider Monkey’s hedge fund database, Boykin Curry’s Eagle Capital Management has the largest position in Aon plc (NYSE:AON), worth close to $1.8137 billion, amounting to 5.3% of its total 13F portfolio. Sitting at the No. 2 spot is Berkshire Hathaway, managed by Warren Buffett, which holds a $1.2562 billion position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Rajiv Jain’s GQG Partners and William von Mueffling’s Cantillon Capital Management. In terms of the portfolio weights assigned to each position LFL Advisers allocated the biggest weight to Aon plc (NYSE:AON), around 10.21% of its 13F portfolio. Night Owl Capital Management is also relatively very bullish on the stock, dishing out 8.47 percent of its 13F equity portfolio to AON.

Judging by the fact that Aon plc (NYSE:AON) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedgies who sold off their full holdings by the end of the third quarter. Interestingly, Andreas Halvorsen’s Viking Global said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, comprising close to $693.1 million in stock, and John Smith Clark’s Southpoint Capital Advisors was right behind this move, as the fund said goodbye to about $179.1 million worth. These moves are important to note, as total hedge fund interest fell by 21 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Aon plc (NYSE:AON). These stocks are Colgate-Palmolive Company (NYSE:CL), Illumina, Inc. (NASDAQ:ILMN), Waste Management, Inc. (NYSE:WM), Autodesk, Inc. (NASDAQ:ADSK), Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), and Workday Inc (NYSE:WDAY). This group of stocks’ market valuations match AON’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.1 hedge funds with bullish positions and the average amount invested in these stocks was $2702 million. That figure was $6005 million in AON’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Banco Santander, S.A. (NYSE:SAN) is the least popular one with only 14 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AON is 32. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, AON wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AON were disappointed as the stock returned -2.9% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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