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Were Hedge Funds Right About Dumping Apartment Investment and Management Co. (AIV)?

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 (see why hell is coming). 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 Apartment Investment and Management Co. (NYSE:AIV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Apartment Investment and Management Co. (NYSE:AIV) ready to rally soon? The smart money was turning less bullish. The number of bullish hedge fund positions went down by 3 lately. Our calculations also showed that AIV isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to view the key hedge fund action regarding Apartment Investment and Management Co. (NYSE:AIV).

What does smart money think about Apartment Investment and Management Co. (NYSE:AIV)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the fourth quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in AIV a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Apartment Investment and Management Co. (NYSE:AIV), which was worth $141 million at the end of the third quarter. On the second spot was Long Pond Capital which amassed $123.7 million worth of shares. V3 Capital, Waterfront Capital Partners, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to Apartment Investment and Management Co. (NYSE:AIV), around 7.23% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, dishing out 6.34 percent of its 13F equity portfolio to AIV.

Due to the fact that Apartment Investment and Management Co. (NYSE:AIV) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds who were dropping their entire stakes by the end of the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $27.7 million in stock. Greg Poole’s fund, Echo Street Capital Management, also cut its stock, about $18.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apartment Investment and Management Co. (NYSE:AIV) but similarly valued. These stocks are Jones Lang LaSalle Inc (NYSE:JLL), American Airlines Group Inc (NASDAQ:AAL), CubeSmart (NYSE:CUBE), and Pearson PLC (NYSE:PSO). This group of stocks’ market caps are closest to AIV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JLL 26 660081 -4
AAL 36 681734 -5
CUBE 18 185612 -9
PSO 8 10618 3
Average 22 384511 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $395 million in AIV’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 8 bullish hedge fund positions. Apartment Investment and Management Co. (NYSE:AIV) 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. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately AIV wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AIV investors were disappointed as the stock returned 3% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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