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How Did AerCap Holdings N.V. (AER) Compare Against Top Hedge Fund Stocks in 2019?

Nina Todic

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like AerCap Holdings N.V. (NYSE:AER).

AerCap Holdings N.V. (NYSE:AER) shareholders have witnessed an increase in enthusiasm from smart money lately. AER was in 28 hedge funds' portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with AER holdings at the end of the previous quarter. Our calculations also showed that AER 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).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_735636" align="aligncenter" width="473"] Matthew Lindenbaum of Basswood Capital[/caption]

Matthew Lindenbaum Basswood Capital

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Now we're going to take a look at the fresh hedge fund action encompassing AerCap Holdings N.V. (NYSE:AER).

How have hedgies been trading AerCap Holdings N.V. (NYSE:AER)?

At Q3's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AER over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Eagle Capital Management held the most valuable stake in AerCap Holdings N.V. (NYSE:AER), which was worth $486.3 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $298.1 million worth of shares. Greenlight Capital, Basswood Capital, and GLG 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 Greenlight Capital allocated the biggest weight to AerCap Holdings N.V. (NYSE:AER), around 13.72% of its 13F portfolio. Cobalt Capital Management is also relatively very bullish on the stock, earmarking 7.59 percent of its 13F equity portfolio to AER.

Now, key hedge funds were leading the bulls' herd. Perella Weinberg Partners assembled the most outsized position in AerCap Holdings N.V. (NYSE:AER). Perella Weinberg Partners had $2.1 million invested in the company at the end of the quarter. Paul J. Isaac's Arbiter Partners Capital Management also initiated a $1.3 million position during the quarter. The other funds with brand new AER positions are Karim Abbadi and Edward McBride's Centiva Capital, Matthew Tewksbury's Stevens Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as AerCap Holdings N.V. (NYSE:AER) but similarly valued. These stocks are Levi Strauss & Co. (NYSE:LEVI), Qiagen NV (NYSE:QGEN), Tapestry, Inc. (NYSE:TPR), and James Hardie Industries plc (NYSE:JHX). This group of stocks' market valuations match AER's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEVI,10,21784,-5 QGEN,22,277049,-3 TPR,24,385305,-8 JHX,2,6880,0 Average,14.5,172755,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $1220 million in AER's case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks AerCap Holdings N.V. (NYSE:AER) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AER as the stock returned 55.2% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. 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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