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Hedge Funds Are Crazy About AAR Corp. (AIR)

·6 min read

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards AAR Corp. (NYSE:AIR) to find out whether there were any major changes in hedge funds' views.

AAR Corp. (NYSE:AIR) investors should be aware of an increase in activity from the world's largest hedge funds of late. AAR Corp. (NYSE:AIR) was in 24 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 23. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AIR isn't among the 30 most popular stocks among hedge funds (click 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' 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 79 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.

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to take a look at the latest hedge fund action encompassing AAR Corp. (NYSE:AIR).

Do Hedge Funds Think AIR Is A Good Stock To Buy Now?

At second quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in AIR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Rubric Capital Management held the most valuable stake in AAR Corp. (NYSE:AIR), which was worth $50.4 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $24.5 million worth of shares. Royce & Associates, Balyasny Asset Management, and D E Shaw 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 Rubric Capital Management allocated the biggest weight to AAR Corp. (NYSE:AIR), around 3.17% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to AIR.

As aggregate interest increased, key hedge funds have jumped into AAR Corp. (NYSE:AIR) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in AAR Corp. (NYSE:AIR). Arrowstreet Capital had $7.2 million invested in the company at the end of the quarter. Mika Toikka's AlphaCrest Capital Management also initiated a $1.8 million position during the quarter. The following funds were also among the new AIR investors: Renaissance Technologies, Cliff Asness's AQR Capital Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's check out hedge fund activity in other stocks similar to AAR Corp. (NYSE:AIR). These stocks are Alexander's, Inc. (NYSE:ALX), Columbus McKinnon Corporation (NASDAQ:CMCO), Marten Transport, Ltd (NASDAQ:MRTN), The Children's Place Inc. (NASDAQ:PLCE), Redwood Trust, Inc. (NYSE:RWT), Agilysys, Inc. (NASDAQ:AGYS), and Axcelis Technologies Inc (NASDAQ:ACLS). 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 ALX,13,112544,6 CMCO,15,39203,2 MRTN,15,41900,-3 PLCE,23,179168,5 RWT,12,54787,-6 AGYS,15,384835,2 ACLS,19,183248,-2 Average,16,142241,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $201 million in AIR's case. The Children's Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand Redwood Trust, Inc. (NYSE:RWT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks AAR Corp. (NYSE:AIR) is more popular among hedge funds. Our overall hedge fund sentiment score for AIR is 89. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately AIR wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AIR were disappointed as the stock returned -9.8% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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