We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Aaron’s, Inc. (NYSE:AAN) and determine whether hedge funds skillfully traded this stock.
Aaron’s, Inc. (NYSE:AAN) investors should be aware of an increase in enthusiasm from smart money in recent months. Aaron’s, Inc. (NYSE:AAN) was in 27 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. There were 25 hedge funds in our database with AAN holdings at the end of March. Our calculations also showed that AAN isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the 21st century investor’s toolkit there are a large number of metrics investors put to use to analyze publicly traded companies. Two of the less utilized metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outclass the S&P 500 by a solid margin (see the details here).
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let’s check out the key hedge fund action surrounding Aaron’s, Inc. (NYSE:AAN).
How have hedgies been trading Aaron’s, Inc. (NYSE:AAN)?
At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AAN over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, HG Vora Capital Management, managed by Parag Vora, holds the number one position in Aaron’s, Inc. (NYSE:AAN). HG Vora Capital Management has a $113.5 million position in the stock, comprising 10.2% of its 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, led by Ric Dillon, holding a $43 million position; 0.3% of its 13F portfolio is allocated to the company. Other peers that are bullish consist of David Brown’s Hawk Ridge Management, 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 HG Vora Capital Management allocated the biggest weight to Aaron’s, Inc. (NYSE:AAN), around 10.21% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, setting aside 5.49 percent of its 13F equity portfolio to AAN.
As industrywide interest jumped, some big names were breaking ground themselves. Cloverdale Capital Management, managed by C. Jonathan Gattman, established the most valuable position in Aaron’s, Inc. (NYSE:AAN). Cloverdale Capital Management had $6.4 million invested in the company at the end of the quarter. John Osterweis’s Osterweis Capital Management also initiated a $4.4 million position during the quarter. The following funds were also among the new AAN investors: Joel Greenblatt’s Gotham Asset Management, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). We will take a look at Balchem Corporation (NASDAQ:BCPC), TechnipFMC plc (NYSE:FTI), PNM Resources, Inc. (NYSE:PNM), Ardagh Group S.A. (NYSE:ARD), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Intercorp Financial Services Inc. (NYSE:IFS), and SmileDirectClub, Inc. (NASDAQ:SDC). This group of stocks’ market valuations are closest to AAN’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 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $335 million in AAN’s case. TechnipFMC plc (NYSE:FTI) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. Aaron’s, Inc. (NYSE:AAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AAN is 75.4. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on AAN as the stock returned 22.7% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.