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Do Hedge Funds Love Allied Esports Entertainment, Inc. (AESE)?

In this article we will take a look at whether hedge funds think Allied Esports Entertainment, Inc. (NASDAQ:AESE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Allied Esports Entertainment, Inc. (NASDAQ:AESE) undervalued? Investors who are in the know are in a bearish mood. The number of long hedge fund positions decreased by 1 in recent months. Our calculations also showed that AESE 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). AESE was in 3 hedge funds’ portfolios at the end of March. There were 4 hedge funds in our database with AESE holdings at the end of the previous quarter.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the key hedge fund action encompassing Allied Esports Entertainment, Inc. (NASDAQ:AESE).

How have hedgies been trading Allied Esports Entertainment, Inc. (NASDAQ:AESE)?

At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in AESE a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Allied Esports Entertainment, Inc. (NASDAQ:AESE) was held by Royce & Associates, which reported holding $0.3 million worth of stock at the end of September. It was followed by Millennium Management with a $0.1 million position. The only other hedge fund that is bullish on the company was Ionic Capital Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Centiva Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified AESE as a viable investment and initiated a position in the stock.

Let’s also examine hedge fund activity in other stocks similar to Allied Esports Entertainment, Inc. (NASDAQ:AESE). These stocks are Idera Pharmaceuticals Inc (NASDAQ:IDRA), GNC Holdings Inc (NYSE:GNC), Manhattan Bridge Capital, Inc (NASDAQ:LOAN), and AudioEye, Inc. (NASDAQ:AEYE). This group of stocks’ market values are closest to AESE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDRA 8 7838 1
GNC 7 1655 -8
LOAN 1 824 0
AEYE 2 170 0
Average 4.5 2622 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $0 million in AESE’s case. Idera Pharmaceuticals Inc (NASDAQ:IDRA) is the most popular stock in this table. On the other hand Manhattan Bridge Capital, Inc (NASDAQ:LOAN) is the least popular one with only 1 bullish hedge fund positions. Allied Esports Entertainment, Inc. (NASDAQ:AESE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately AESE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AESE investors were disappointed as the stock returned 8.9% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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