Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to check out the latest hedge fund action surrounding Aaron’s, Inc. (NYSE:AAN).
How have hedgies been trading Aaron’s, Inc. (NYSE:AAN)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AAN over the last 13 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Aaron’s, Inc. (NYSE:AAN) was held by Diamond Hill Capital, which reported holding $59.4 million worth of stock at the end of September. It was followed by Portolan Capital Management with a $34.2 million position. Other investors bullish on the company included GLG Partners, GAMCO Investors, and AQR Capital Management.
Since Aaron’s, Inc. (NYSE:AAN) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few funds who were dropping their full holdings by the end of the third quarter. Intriguingly, David Costen Haley’s HBK Investments cut the biggest position of the 700 funds watched by Insider Monkey, comprising close to $1.4 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also dumped its stock, about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). We will take a look at Ardagh Group S.A. (NYSE:ARD), Flowers Foods, Inc. (NYSE:FLO), Macquarie Infrastructure Corporation (NYSE:MIC), and Ritchie Bros. Auctioneers Incorporated (NYSE:RBA). This group of stocks’ market caps are closest to AAN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $242 million in AAN’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand Ardagh Group S.A. (NYSE:ARD) is the least popular one with only 8 bullish hedge fund positions. Aaron’s, Inc. (NYSE:AAN) 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. In this regard MIC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.