Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like AEGON N.V. (NYSE:AEG).
AEGON N.V. (NYSE:AEG) investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that AEG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding AEGON N.V. (NYSE:AEG).
How have hedgies been trading AEGON N.V. (NYSE:AEG)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AEG over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in AEGON N.V. (NYSE:AEG), which was worth $22.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $2.4 million worth of shares. Two Sigma Advisors, Millennium Management, and Weld Capital Management 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 Arrowstreet Capital allocated the biggest weight to AEGON N.V. (NYSE:AEG), around 0.05% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to AEG.
Seeing as AEGON N.V. (NYSE:AEG) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely last quarter. It’s worth mentioning that Renaissance Technologies sold off the largest investment of the 750 funds tracked by Insider Monkey, worth an estimated $3.7 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its call options, about $1 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to AEGON N.V. (NYSE:AEG). We will take a look at Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Carlisle Companies, Inc. (NYSE:CSL), and Lamar Advertising Co (NASDAQ:LAMR). This group of stocks’ market valuations are closest to AEG’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $453 million. That figure was $26 million in AEG’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks AEGON N.V. (NYSE:AEG) is even less popular than AVAL. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on AEG, though not to the same extent, as the stock returned 8.2% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.