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Is Aon plc (AON) Going to Burn These Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Aon plc (NYSE:AON) to find out whether it was one of their high conviction long-term ideas.

Aon plc (NYSE:AON) was in 30 hedge funds’ portfolios at the end of September. AON investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 37 hedge funds in our database with AON holdings at the end of the previous quarter. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Boykin Curry EAGLE CAPITAL MANAGEMENT

Let’s take a look at the recent hedge fund action encompassing Aon plc (NYSE:AON).

How are hedge funds trading Aon plc (NYSE:AON)?

Heading into the fourth quarter of 2018, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in AON heading into this year. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

AON_dec2018

When looking at the institutional investors followed by Insider Monkey, Boykin Curry’s Eagle Capital Management has the largest position in Aon plc (NYSE:AON), worth close to $1.1658 billion, amounting to 4% of its total 13F portfolio. The second largest stake is held by First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $475.4 million position; 3.4% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise David Cohen and Harold Levy’s Iridian Asset Management, William von Mueffling’s Cantillon Capital Management and William von Mueffling’s Cantillon Capital Management.

Judging by the fact that Aon plc (NYSE:AON) has experienced falling interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that slashed their entire stakes heading into Q3. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the biggest position of the 700 funds watched by Insider Monkey, totaling about $25.9 million in stock. Greg Poole’s fund, Echo Street Capital Management, also cut its stock, about $8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 7 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Aon plc (NYSE:AON). We will take a look at Baker Hughes, a GE company (NYSE:BHGE), V.F. Corporation (NYSE:VFC), Ross Stores, Inc. (NASDAQ:ROST), and Ford Motor Company (NYSE:F). 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
BHGE 27 711079 7
VFC 32 1289343 8
ROST 31 966231 4
F 30 991693 -2
Average 30 989587 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $990 million. That figure was $3.07 billion in AON’s case. V.F. Corporation (NYSE:VFC) is the most popular stock in this table. On the other hand Baker Hughes, a GE company (NYSE:BHGE) is the least popular one with only 27 bullish hedge fund positions. Aon plc (NYSE:AON) 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 VFC might be a better candidate to consider a long position.

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

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