Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Air Lease Corp (NYSE:AL), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Air Lease Corp (NYSE:AL) a buy right now? The smart money is taking a pessimistic view. The number of long hedge fund bets shrunk by 5 in recent months. Our calculations also showed that AL isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 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 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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the latest hedge fund action encompassing Air Lease Corp (NYSE:AL).
What does smart money think about Air Lease Corp (NYSE:AL)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AL over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Air Lease Corp (NYSE:AL), which was worth $124.1 million at the end of the second quarter. On the second spot was Basswood Capital which amassed $50.9 million worth of shares. Moreover, Selz 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.
Since Air Lease Corp (NYSE:AL) has faced a decline in interest from the smart money, logic holds that there was a specific group of hedgies that decided to sell off their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management cut the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $4.2 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dropped about $3.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to Air Lease Corp (NYSE:AL). These stocks are Life Storage, Inc. (NYSE:LSI), PacWest Bancorp (NASDAQ:PACW), Selective Insurance Group, Inc. (NASDAQ:SIGI), and Manhattan Associates, Inc. (NASDAQ:MANH). All of these stocks' market caps match AL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LSI,20,349068,5 PACW,20,223740,-1 SIGI,14,43688,2 MANH,17,425498,-1 Average,17.75,260499,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $321 million in AL's case. Life Storage, Inc. (NYSE:LSI) is the most popular stock in this table. On the other hand Selective Insurance Group, Inc. (NASDAQ:SIGI) is the least popular one with only 14 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AL were disappointed as the stock returned 1.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.