Were Hedge Funds Right About Selling American International Group Inc (AIG)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAmerican International Group Inc (NYSE:AIG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is American International Group Inc (NYSE:AIG) the right investment to pursue these days? Prominent investors were taking a pessimistic view. The number of long hedge fund positions shrunk by 9 in recent months. Our calculations also showed that AIG 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). AIG was in 43 hedge funds’ portfolios at the end of March. There were 52 hedge funds in our database with AIG positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the key hedge fund action encompassing American International Group Inc (NYSE:AIG).

How have hedgies been trading American International Group Inc (NYSE:AIG)?

At Q1’s end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AIG over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pzena Investment Management held the most valuable stake in American International Group Inc (NYSE:AIG), which was worth $385.2 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $348.5 million worth of shares. First Pacific Advisors LLC, Levin Easterly Partners, and Arrowstreet Capital 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 Capital Returns Management allocated the biggest weight to American International Group Inc (NYSE:AIG), around 9.48% of its 13F portfolio. Spindletop Capital is also relatively very bullish on the stock, setting aside 9.12 percent of its 13F equity portfolio to AIG.

Seeing as American International Group Inc (NYSE:AIG) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes by the end of the first quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of all the hedgies tracked by Insider Monkey, totaling about $193 million in stock. Andreas Halvorsen’s fund, Viking Global, also dumped its stock, about $140.7 million worth. These transactions are interesting, as total hedge fund interest fell by 9 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American International Group Inc (NYSE:AIG) but similarly valued. These stocks are Verisign, Inc. (NASDAQ:VRSN), EOG Resources Inc (NYSE:EOG), Zimmer Biomet Holdings Inc (NYSE:ZBH), and IQVIA Holdings, Inc. (NYSE:IQV). This group of stocks’ market caps resemble AIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRSN 41 5645444 3
EOG 44 801052 1
ZBH 51 621129 -13
IQV 60 2473750 -4
Average 49 2385344 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $2385 million. That figure was $1474 million in AIG’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand Verisign, Inc. (NASDAQ:VRSN) is the least popular one with only 41 bullish hedge fund positions. American International Group Inc (NYSE:AIG) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on AIG as the stock returned 29.9% during the second quarter and outperformed the market by an even larger margin.

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