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2019 Review: Top Hedge Fund Stocks vs. American Airlines Group Inc (AAL)

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in American Airlines Group Inc (NASDAQ:AAL).

American Airlines Group Inc (NASDAQ:AAL) was in 38 hedge funds' portfolios at the end of the third quarter of 2019. AAL investors should pay attention to an increase in support from the world's most elite money managers of late. There were 34 hedge funds in our database with AAL positions at the end of the previous quarter. Our calculations also showed that AAL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_315178" align="alignnone" width="600"] Warren Buffett of Berkshire Hathaway[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's check out the fresh hedge fund action encompassing American Airlines Group Inc (NASDAQ:AAL).

Hedge fund activity in American Airlines Group Inc (NASDAQ:AAL)

At Q3's end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter of 2019. On the other hand, there were a total of 39 hedge funds with a bullish position in AAL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AAL A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in American Airlines Group Inc (NASDAQ:AAL), which was worth $1178.6 million at the end of the third quarter. On the second spot was Lansdowne Partners which amassed $198.2 million worth of shares. AQR Capital Management, Cyrus Capital Partners, and Miller Value Partners 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 Cyrus Capital Partners allocated the biggest weight to American Airlines Group Inc (NASDAQ:AAL), around 8.94% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, designating 6.76 percent of its 13F equity portfolio to AAL.

As aggregate interest increased, specific money managers have been driving this bullishness. AQR Capital Management, managed by Cliff Asness, established the largest position in American Airlines Group Inc (NASDAQ:AAL). AQR Capital Management had $67.8 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also made a $15.3 million investment in the stock during the quarter. The following funds were also among the new AAL investors: David Harding's Winton Capital Management, Benjamin A. Smith's Laurion Capital Management, and Israel Englander's Millennium Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as American Airlines Group Inc (NASDAQ:AAL) but similarly valued. We will take a look at Lyft, Inc. (NASDAQ:LYFT), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), BanColombia S.A. (NYSE:CIB), and Roku, Inc. (NASDAQ:ROKU). This group of stocks' market caps are similar to AAL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYFT,33,880680,-4 XRAY,28,1628924,-1 CIB,11,166123,1 ROKU,37,322495,4 Average,27.25,749556,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $750 million. That figure was $1781 million in AAL's case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks American Airlines Group Inc (NASDAQ:AAL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AAL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AAL were disappointed as the stock returned -7.6% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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