Hedge Funds Are Cashing Out Of Aon plc (AON)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Aon plc (NYSE:AON).

Is Aon plc (NYSE:AON) a healthy stock for your portfolio? Hedge funds were in a bearish mood. The number of long hedge fund positions fell by 4 recently. Aon plc (NYSE:AON) was in 68 hedge funds’ portfolios at the end of June. The all time high for this statistic is 72. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 72 hedge funds in our database with AON holdings at the end of March.

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Warren Buffett of Berkshire Hathaway

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the fresh hedge fund action regarding Aon plc (NYSE:AON).

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

At the end of the second quarter, a total of 68 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 57 hedge funds held shares or bullish call options in AON a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is AON A Good Stock To Buy?

Among these funds, Eagle Capital Management held the most valuable stake in Aon plc (NYSE:AON), which was worth $1566.4 million at the end of the second quarter. On the second spot was Berkshire Hathaway which amassed $1049.6 million worth of shares. Viking Global, Farallon Capital, and BlueSpruce Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Brave Warrior Capital allocated the biggest weight to Aon plc (NYSE:AON), around 10.25% of its 13F portfolio. Ursa Fund Management is also relatively very bullish on the stock, dishing out 9.24 percent of its 13F equity portfolio to AON.

Since Aon plc (NYSE:AON) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies who were dropping their full holdings by the end of the second quarter. Interestingly, Ricky Sandler’s Eminence Capital dumped the largest stake of all the hedgies tracked by Insider Monkey, totaling about $130.7 million in stock, and Doug Silverman and Alexander Klabin’s Senator Investment Group was right behind this move, as the fund dropped about $124 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Aon plc (NYSE:AON) but similarly valued. These stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX), General Dynamics Corporation (NYSE:GD), Takeda Pharmaceutical Company Limited (NYSE:TAK), Enterprise Products Partners L.P. (NYSE:EPD), Spotify Technology S.A. (NYSE:SPOT), Public Storage (NYSE:PSA), and Metlife Inc (NYSE:MET). This group of stocks’ market valuations resemble AON’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDXX 39 3576489 -10
GD 37 6235948 6
TAK 19 551214 0
EPD 28 246056 2
SPOT 48 3496814 2
PSA 27 1089757 1
MET 41 1056766 9
Average 34.1 2321863 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $2322 million. That figure was $8130 million in AON’s case. Spotify Technology S.A. (NYSE:SPOT) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Aon plc (NYSE:AON) is more popular among hedge funds. Our overall hedge fund sentiment score for AON is 79.3. 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. 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 returned 25.7% in 2021 through September 27th but still managed to beat the market by 6.2 percentage points. Hedge funds were also right about betting on AON as the stock returned 23.4% since the end of June (through 9/27) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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