Is Aaron’s, Inc. (AAN) Going to Burn These Hedge Funds?

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Aaron’s, Inc. (NYSE:AAN) was in 16 hedge funds’ portfolio at the end of the first quarter of 2013. AAN investors should pay attention to a decrease in hedge fund sentiment lately. There were 16 hedge funds in our database with AAN holdings at the end of the previous quarter.

In the eyes of most traders, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are greater than 8000 funds with their doors open at present, we at Insider Monkey choose to focus on the crème de la crème of this club, close to 450 funds. It is widely believed that this group oversees the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their best picks, we have brought to light a number of investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Mario GabelliJust as beneficial, bullish insider trading activity is a second way to parse down the investments you’re interested in. There are many motivations for an executive to downsize shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several academic studies have demonstrated the valuable potential of this strategy if you know what to do (learn more here).

Keeping this in mind, it’s important to take a gander at the latest action encompassing Aaron’s, Inc. (NYSE:AAN).

What does the smart money think about Aaron’s, Inc. (NYSE:AAN)?

Heading into Q2, a total of 16 of the hedge funds we track were bullish in this stock, a change of 0% from the first quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes considerably.

When looking at the hedgies we track, Mario Gabelli’s GAMCO Investors had the most valuable position in Aaron’s, Inc. (NYSE:AAN), worth close to $34.3 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Ric Dillon of Diamond Hill Capital, with a $32.7 million position; 0.3% of its 13F portfolio is allocated to the stock. Other hedge funds with similar optimism include Thomas E. Claugus’s GMT Capital, Jim Simons’s Renaissance Technologies and D. E. Shaw’s D E Shaw.

Seeing as Aaron’s, Inc. (NYSE:AAN) has witnessed a declination in interest from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their entire stakes heading into Q2. At the top of the heap, Jeffrey Vinik’s Vinik Asset Management dropped the largest stake of all the hedgies we track, worth about $3.1 million in stock., and John Overdeck and David Siegel of Two Sigma Advisors was right behind this move, as the fund cut about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What do corporate executives and insiders think about Aaron’s, Inc. (NYSE:AAN)?

Bullish insider trading is most useful when the primary stock in question has seen transactions within the past 180 days. Over the latest six-month time period, Aaron’s, Inc. (NYSE:AAN) has seen zero unique insiders purchasing, and 4 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). These stocks are Air Lease Corp (NYSE:AL), GATX Corporation (NYSE:GMT), Textainer Group Holdings Limited (NYSE:TGH), , and Rent-A-Center Inc (NASDAQ:RCII). This group of stocks are in the rental & leasing services industry and their market caps resemble AAN’s market cap.

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