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Were Hedge Funds Right About The AES Corporation (AES)?

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 thoughtThe AES Corporation (NYSE:AES) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

The AES Corporation (NYSE:AES) shareholders have witnessed an increase in hedge fund sentiment lately. AES was in 31 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with AES holdings at the end of the previous quarter. Our calculations also showed that AES 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.

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.

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 tiny lithium stock. With all of this in mind let’s view the latest hedge fund action encompassing The AES Corporation (NYSE:AES).

What does smart money think about The AES Corporation (NYSE:AES)?

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AES over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the largest position in The AES Corporation (NYSE:AES), worth close to $188.7 million, accounting for 0.2% of its total 13F portfolio. On Renaissance Technologies’s heels is ValueAct Capital, managed by Jeffrey Ubben, which holds a $59.1 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Jos Shaver’s Electron Capital Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to The AES Corporation (NYSE:AES), around 10.59% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, dishing out 6.22 percent of its 13F equity portfolio to AES.

Now, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in The AES Corporation (NYSE:AES). Arrowstreet Capital had $17 million invested in the company at the end of the quarter. Till Bechtolsheimer’s Arosa Capital Management also made a $4.8 million investment in the stock during the quarter. The other funds with brand new AES positions are Michael Gelband’s ExodusPoint Capital, Dmitry Balyasny’s Balyasny Asset Management, and Sara Nainzadeh’s Centenus Global Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The AES Corporation (NYSE:AES) but similarly valued. These stocks are Teradyne, Inc. (NASDAQ:TER), ONEOK, Inc. (NYSE:OKE), Medical Properties Trust, Inc. (NYSE:MPW), and Fair Isaac Corporation (NYSE:FICO). All of these stocks’ market caps are similar to AES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TER 28 842457 -5
OKE 25 135073 -6
MPW 16 164781 2
FICO 41 1225484 -4
Average 27.5 591949 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $446 million in AES’s case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 16 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. 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 but beat the market by 15.5 percentage points. Unfortunately AES wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AES were disappointed as the stock returned 7.6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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