Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of American Airlines Group Inc (NASDAQ:AAL) based on that data.
American Airlines Group Inc (NASDAQ:AAL) investors should pay attention to a decrease in hedge fund sentiment recently. AAL was in 36 hedge funds' portfolios at the end of the first quarter of 2020. There were 41 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 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.
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 S&P 500 ETFs by more than 51 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 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_695350" align="aligncenter" width="393"] Anna Nikolayevsky of Axel Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. With all of this in mind we're going to check out the key hedge fund action encompassing American Airlines Group Inc (NASDAQ:AAL).
What have hedge funds been doing with American Airlines Group Inc (NASDAQ:AAL)?
Heading into the second quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the fourth quarter of 2019. By comparison, 41 hedge funds held shares or bullish call options in AAL a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in American Airlines Group Inc (NASDAQ:AAL), which was worth $510.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $65.1 million worth of shares. Cyrus Capital Partners, Hosking Partners, and Masters Capital Management 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 17.11% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, dishing out 2.07 percent of its 13F equity portfolio to AAL.
Judging by the fact that American Airlines Group Inc (NASDAQ:AAL) has experienced a decline in interest from hedge fund managers, it's easy to see that there lies a certain "tier" of funds who were dropping their positions entirely heading into Q4. At the top of the heap, Alex Snow's Lansdowne Partners dropped the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $186.6 million in stock, and Bill Miller's Miller Value Partners was right behind this move, as the fund said goodbye to about $77.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to American Airlines Group Inc (NASDAQ:AAL). We will take a look at CubeSmart (NYSE:CUBE), Pearson PLC (NYSE:PSO), Wix.Com Ltd (NASDAQ:WIX), and Lincoln National Corporation (NYSE:LNC). This group of stocks' market caps match AAL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUBE,18,185612,-9 PSO,8,10618,3 WIX,29,597387,-5 LNC,26,602265,-14 Average,20.25,348971,-6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $349 million. That figure was $682 million in AAL's case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 8 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 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately AAL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AAL were disappointed as the stock returned -13.9% during the second quarter (through the end of May) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.