Were Hedge Funds Right About Piling Into Aon plc (AON)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Aon plc (NYSE:AON).

Aon plc (NYSE:AON) has seen an increase in enthusiasm from smart money lately. Aon plc (NYSE:AON) was in 63 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 52 hedge funds in our database with AON holdings at the end of September. Our calculations also showed that AON isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 124 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the new hedge fund action regarding Aon plc (NYSE:AON).

Do Hedge Funds Think AON Is A Good Stock To Buy Now?

At the end of December, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in AON over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Aon plc (NYSE:AON) was held by Eagle Capital Management, which reported holding $1511.2 million worth of stock at the end of December. It was followed by Viking Global with a $543.1 million position. Other investors bullish on the company included BlueSpruce Investments, Farallon Capital, and Brave Warrior Capital. In terms of the portfolio weights assigned to each position Brave Warrior Capital allocated the biggest weight to Aon plc (NYSE:AON), around 11.64% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, earmarking 10.34 percent of its 13F equity portfolio to AON.

Now, specific money managers were leading the bulls’ herd. GQG Partners, managed by Rajiv Jain, created the most valuable position in Aon plc (NYSE:AON). GQG Partners had $245.6 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $46.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Carl Tiedemann and Michael Tiedemann’s TIG Advisors, Peter Lewis’s LFL Advisers, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks similar to Aon plc (NYSE:AON). We will take a look at Prudential Public Limited Company (NYSE:PUK), Emerson Electric Co. (NYSE:EMR), Ambev SA (NYSE:ABEV), Newmont Corporation (NYSE:NEM), Eaton Corporation plc (NYSE:ETN), Relx PLC (NYSE:RELX), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). All of these stocks’ market caps are similar to AON’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $1540 million. That figure was $5800 million in AON’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 2 bullish hedge fund positions. Aon plc (NYSE:AON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AON is 73.9. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on AON as the stock returned 19.5% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

Follow Insider Monkey on Twitter