In this article we will check out the progression of hedge fund sentiment towards AeroVironment, Inc. (NASDAQ:AVAV) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is AVAV a good stock to buy now? AeroVironment, Inc. (NASDAQ:AVAV) investors should be aware of a decrease in support from the world’s most elite money managers lately. AeroVironment, Inc. (NASDAQ:AVAV) was in 16 hedge funds’ portfolios at the end of September. The all time high for this statistic is 17. Our calculations also showed that AVAV 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we’re going to take a look at the recent hedge fund action surrounding AeroVironment, Inc. (NASDAQ:AVAV).
Do Hedge Funds Think AVAV Is A Good Stock To Buy Now?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in AVAV a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in AeroVironment, Inc. (NASDAQ:AVAV). Fisher Asset Management has a $12.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $9.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish include William Heard’s Heard Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to AeroVironment, Inc. (NASDAQ:AVAV), around 2.78% of its 13F portfolio. Algert Global is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to AVAV.
Since AeroVironment, Inc. (NASDAQ:AVAV) has faced falling interest from hedge fund managers, it’s easy to see that there is a sect of funds who sold off their full holdings heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest investment of the 750 funds tracked by Insider Monkey, worth close to $3 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dumped its stock, about $2.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to AeroVironment, Inc. (NASDAQ:AVAV). These stocks are Cactus, Inc. (NYSE:WHD), Delphi Technologies PLC (NYSE:DLPH), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Kymera Therapeutics, Inc. (NASDAQ:KYMR), WesBanco, Inc. (NASDAQ:WSBC), Generation Bio Co. (NASDAQ:GBIO), and McGrath RentCorp (NASDAQ:MGRC). This group of stocks’ market valuations match AVAV’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 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $49 million in AVAV’s case. Delphi Technologies PLC (NYSE:DLPH) is the most popular stock in this table. On the other hand Generation Bio Co. (NASDAQ:GBIO) is the least popular one with only 6 bullish hedge fund positions. AeroVironment, Inc. (NASDAQ:AVAV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVAV is 54. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on AVAV as the stock returned 35.4% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.