The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded AAR Corp. (NYSE:AIR) based on those filings.
AAR Corp. (NYSE:AIR) was in 18 hedge funds' portfolios at the end of the first quarter of 2020. AIR investors should pay attention to a decrease in enthusiasm from smart money recently. There were 23 hedge funds in our database with AIR positions at the end of the previous quarter. Our calculations also showed that AIR 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="400"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the recent hedge fund action encompassing AAR Corp. (NYSE:AIR).
Hedge fund activity in AAR Corp. (NYSE:AIR)
Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AIR over the last 18 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in AAR Corp. (NYSE:AIR) was held by Fisher Asset Management, which reported holding $13.2 million worth of stock at the end of September. It was followed by GAMCO Investors with a $8 million position. Other investors bullish on the company included Beach Point Capital Management, Adage Capital Management, and Prescott Group Capital Management. In terms of the portfolio weights assigned to each position Beach Point Capital Management allocated the biggest weight to AAR Corp. (NYSE:AIR), around 4.96% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, dishing out 1.13 percent of its 13F equity portfolio to AIR.
Seeing as AAR Corp. (NYSE:AIR) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of money managers that elected to cut their entire stakes heading into Q4. It's worth mentioning that Principal Global Investors's Columbus Circle Investors cut the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $33.4 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dumped about $2.1 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to AAR Corp. (NYSE:AIR). We will take a look at Bloomin' Brands Inc (NASDAQ:BLMN), Qutoutiao Inc. (NASDAQ:QTT), PDC Energy Inc (NASDAQ:PDCE), and Oxford Industries, Inc. (NYSE:OXM). This group of stocks' market caps are closest to AIR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLMN,24,88391,6 QTT,9,5239,4 PDCE,25,114905,-7 OXM,12,27638,0 Average,17.5,59043,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $43 million in AIR's case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand Qutoutiao Inc. (NASDAQ:QTT) is the least popular one with only 9 bullish hedge fund positions. AAR Corp. (NYSE:AIR) 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately AIR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AIR were disappointed as the stock returned 18% 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.
Disclosure: None. This article was originally published at Insider Monkey.