At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Aon plc (NYSE:AON).
Is AON a good stock to buy now? Aon plc (NYSE:AON) was in 52 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 57. AON investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. There were 57 hedge funds in our database with AON holdings at the end of June. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
At the moment there are a large number of indicators stock market investors use to analyze stocks. A pair of the less known indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top money managers can outperform the broader indices by a healthy margin (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a peek at the recent hedge fund action encompassing Aon plc (NYSE:AON).
How have hedgies been trading Aon plc (NYSE:AON)?
Heading into the fourth quarter of 2020, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AON over the last 21 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Aon plc (NYSE:AON) was held by Eagle Capital Management, which reported holding $1583.8 million worth of stock at the end of September. It was followed by Viking Global with a $621.6 million position. Other investors bullish on the company included BlueSpruce Investments, Farallon Capital, and Cantillon Capital Management. In terms of the portfolio weights assigned to each position Brave Warrior Capital allocated the biggest weight to Aon plc (NYSE:AON), around 12.19% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, setting aside 10.41 percent of its 13F equity portfolio to AON.
Due to the fact that Aon plc (NYSE:AON) has experienced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their entire stakes last quarter. Interestingly, Greg Poole’s Echo Street Capital Management dumped the largest position of all the hedgies watched by Insider Monkey, comprising close to $87.8 million in stock. Alex Duran and Scott Hendrickson’s fund, Permian Investment Partners, also dumped its stock, about $13.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Aon plc (NYSE:AON). These stocks are The Charles Schwab Corporation (NYSE:SCHW), The PNC Financial Services Group Inc. (NYSE:PNC), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), Ferrari N.V. (NYSE:RACE), Equinor ASA (NYSE:EQNR), TAL Education Group (NYSE:TAL), and Spotify Technology S.A. (NYSE:SPOT). This group of stocks’ market valuations match AON’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 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $1493 million. That figure was $5411 million in AON’s case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 20 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AON is 75.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately AON wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AON were disappointed as the stock returned 1.6% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.