Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like American Electric Power Company Inc (NYSE:AEP).
Is American Electric Power Company Inc (NYSE:AEP) going to take off soon? The best stock pickers are getting more bullish. The number of bullish hedge fund positions rose by 5 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Carnival Corporation (NYSE:CCL), Crown Castle International Corp. (NYSE:CCI), and Canadian Natural Resource Ltd (USA) (NYSE:CNQ) to gather more data points.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year, involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
Now, let’s go over the recent action surrounding American Electric Power Company Inc (NYSE:AEP).
How have hedgies been trading American Electric Power Company Inc (NYSE:AEP)?
Heading into the fourth quarter of 2016, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 19% from the second quarter of 2016. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, run by Cliff Asness, holds the largest position in American Electric Power Company Inc (NYSE:AEP). According to its latest 13F filing, the fund has a $417.1 million position in the stock, comprising 0.6% of its 13F portfolio. On AQR Capital Management’s heels is Millennium Management, led by Israel Englander, holding a $223.4 million stake; 0.4% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish contain Jim Simons’s Renaissance Technologies, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
As one would reasonably expect, some big names have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in American Electric Power Company Inc (NYSE:AEP). The fund reportedly had $10 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $9 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Sander Gerber’s Hudson Bay Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American Electric Power Company Inc (NYSE:AEP) but similarly valued. We will take a look at Carnival Corporation (NYSE:CCL), Crown Castle International Corp. (NYSE:CCI), Canadian Natural Resource Ltd (USA) (NYSE:CNQ), and Yum! Brands, Inc. (NYSE:YUM). This group of stocks’ market valuations are closest to AEP’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.77 billion. That figure was $1.27 billion in AEP’s case. Crown Castle International Corp. (NYSE:CCI) is the most popular stock in this table. On the other hand Canadian Natural Resource Ltd (USA) (NYSE:CNQ) is the least popular one with only 21 bullish hedge fund positions. American Electric Power Company Inc (NYSE:AEP) 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. In this regard CCI might be a better candidate to consider a long position.