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Did Hedge Funds Drop The Ball On Dumping Air Lease Corp (AL) ?

Nina Todic

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Air Lease Corp (NYSE:AL) was in 23 hedge funds' portfolios at the end of March. AL investors should be aware of a decrease in hedge fund interest of late. There were 33 hedge funds in our database with AL holdings at the end of the previous quarter. Our calculations also showed that al isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

We're going to view the latest hedge fund action regarding Air Lease Corp (NYSE:AL).

What have hedge funds been doing with Air Lease Corp (NYSE:AL)?

At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in AL a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with AL Positions

Among these funds, Royce & Associates held the most valuable stake in Air Lease Corp (NYSE:AL), which was worth $112.4 million at the end of the first quarter. On the second spot was Selz Capital which amassed $41 million worth of shares. Moreover, Basswood Capital, Citadel Investment Group, and Osterweis Capital Management were also bullish on Air Lease Corp (NYSE:AL), allocating a large percentage of their portfolios to this stock.

Due to the fact that Air Lease Corp (NYSE:AL) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that slashed their entire stakes heading into Q3. It's worth mentioning that Steve Cohen's Point72 Asset Management dropped the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $6.2 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dumped about $5.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 10 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Air Lease Corp (NYSE:AL). We will take a look at Olin Corporation (NYSE:OLN), Wintrust Financial Corporation (NASDAQ:WTFC), Stifel Financial Corp. (NYSE:SF), and Tech Data Corp (NASDAQ:TECD). All of these stocks' market caps are similar to AL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OLN,28,622842,-5 WTFC,23,380893,-1 SF,16,171601,4 TECD,19,307621,-4 Average,21.5,370739,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $371 million. That figure was $313 million in AL's case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 16 bullish hedge fund positions. Air Lease Corp (NYSE:AL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AL as the stock returned 7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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