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Should You Buy The AES Corporation (AES)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The AES Corporation (NYSE:AES).

The AES Corporation (NYSE:AES) shareholders have witnessed an increase in enthusiasm from smart money recently. AES was in 21 hedge funds’ portfolios at the end of the third quarter of 2018. There were 18 hedge funds in our database with AES positions at the end of the previous quarter. Our calculations also showed that AES 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.

VALUEACT CAPITAL

Let’s go over the latest hedge fund action regarding The AES Corporation (NYSE:AES).

How have hedgies been trading The AES Corporation (NYSE:AES)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in AES at the beginning of this year. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

AES_dec2018

According to Insider Monkey’s hedge fund database, Electron Capital Partners, managed by Jos Shaver, holds the most valuable position in The AES Corporation (NYSE:AES). Electron Capital Partners has a $31.9 million position in the stock, comprising 4.6% of its 13F portfolio. Sitting at the No. 2 spot is John Overdeck and David Siegel of Two Sigma Advisors, with a $28.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Jeffrey Ubben’s ValueAct Capital, Jim Simons’s Renaissance Technologies and Phill Gross and Robert Atchinson’s Adage Capital Management.

As aggregate interest increased, some big names were leading the bulls’ herd. Renaissance Technologies, managed by Jim Simons, established the largest position in The AES Corporation (NYSE:AES). Renaissance Technologies had $14.5 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $6.1 million investment in the stock during the quarter. The following funds were also among the new AES investors: Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s also examine hedge fund activity in other stocks similar to The AES Corporation (NYSE:AES). These stocks are China Eastern Airlines Corp. Ltd. (NYSE:CEA), Reinsurance Group of America Inc (NYSE:RGA), Molina Healthcare, Inc. (NYSE:MOH), and Paycom Software Inc (NYSE:PAYC). This group of stocks’ market valuations match AES’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CEA 1 2917 0
RGA 21 674153 1
MOH 30 1522847 1
PAYC 23 213612 2
Average 18.75 603382 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $603 million. That figure was $152 million in AES’s case. Molina Healthcare, Inc. (NYSE:MOH) is the most popular stock in this table. On the other hand China Eastern Airlines Corp. Ltd. (NYSE:CEA) is the least popular one with only 1 bullish hedge fund positions. The AES Corporation (NYSE:AES) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MOH might be a better candidate to consider a long position.

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

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