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Hedge Funds Cutting Exposure To American Express Company (AXP)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards American Express Company (NYSE:AXP) and determine whether hedge funds skillfully traded this stock.

American Express Company (NYSE:AXP) has experienced a decrease in activity from the world’s largest hedge funds recently. American Express Company (NYSE:AXP) was in 54 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 58. There were 57 hedge funds in our database with AXP positions at the end of the first quarter. Our calculations also showed that AXP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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

Today there are plenty of formulas investors can use to evaluate stocks. A couple of the most underrated formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top fund managers can beat their index-focused peers by a very impressive margin (see the details here).

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the fresh hedge fund action surrounding American Express Company (NYSE:AXP).

What have hedge funds been doing with American Express Company (NYSE:AXP)?

At Q2’s end, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AXP over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is AXP A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in American Express Company (NYSE:AXP), which was worth $14433.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $1390.7 million worth of shares. Viking Global, Tybourne Capital Management, and Citadel Investment Group 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 Aquamarine Capital Management allocated the biggest weight to American Express Company (NYSE:AXP), around 14.56% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 7.98 percent of its 13F equity portfolio to AXP.

Because American Express Company (NYSE:AXP) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that decided to sell off their positions entirely in the second quarter. It’s worth mentioning that John Armitage’s Egerton Capital Limited dropped the largest position of the 750 funds monitored by Insider Monkey, worth close to $169.7 million in stock. Nicolai Tangen’s fund, Ako Capital, also sold off its stock, about $130.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to American Express Company (NYSE:AXP). We will take a look at Morgan Stanley (NYSE:MS), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Mondelez International Inc (NASDAQ:MDLZ), Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), and Becton, Dickinson and Company (NYSE:BDX). All of these stocks’ market caps are similar to AXP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MS 61 4357171 -9
VRTX 54 3477688 -2
KOF 5 358015 -2
MDLZ 54 2594722 0
MO 43 1289543 -3
ZM 48 6758811 1
BDX 53 1971353 -3
Average 45.4 2972472 -2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.4 hedge funds with bullish positions and the average amount invested in these stocks was $2972 million. That figure was $17635 million in AXP’s case. Morgan Stanley (NYSE:MS) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 5 bullish hedge fund positions. American Express Company (NYSE:AXP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXP is 73.7. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately AXP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AXP were disappointed as the stock returned 4.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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