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There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was in 31 hedge funds' portfolios at the end of the second quarter of 2019. SPR investors should pay attention to an increase in support from the world's most elite money managers in recent months. There were 29 hedge funds in our database with SPR holdings at the end of the previous quarter. Our calculations also showed that SPR 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. Let's go over the recent hedge fund action encompassing Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
How have hedgies been trading Spirit AeroSystems Holdings, Inc. (NYSE:SPR)?
At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in SPR a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Darsana Capital Partners, managed by Anand Desai, holds the largest position in Spirit AeroSystems Holdings, Inc. (NYSE:SPR). Darsana Capital Partners has a $549.2 million position in the stock, comprising 17.8% of its 13F portfolio. On Darsana Capital Partners's heels is AQR Capital Management, managed by Cliff Asness, which holds a $431.7 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include OZ Management, Matt Sirovich and Jeremy Mindich's Scopia Capital and D. E. Shaw's D E Shaw.
Consequently, key money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Spirit AeroSystems Holdings, Inc. (NYSE:SPR). Marshall Wace LLP had $17.1 million invested in the company at the end of the quarter. Renaissance Technologies also made a $15.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Charles Davidson and Joseph Jacobs's Wexford Capital, Bruce Kovner's Caxton Associates LP, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Spirit AeroSystems Holdings, Inc. (NYSE:SPR) but similarly valued. We will take a look at Nielsen Holdings plc (NYSE:NLSN), Oaktree Capital Group LLC (NYSE:OAK), Lamar Advertising Co (NASDAQ:LAMR), and Catalent Inc (NYSE:CTLT). All of these stocks' market caps resemble SPR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLSN,35,1457332,2 OAK,17,145509,2 LAMR,24,242953,4 CTLT,20,427262,5 Average,24,568264,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $568 million. That figure was $2043 million in SPR's case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand Oaktree Capital Group LLC (NYSE:OAK) is the least popular one with only 17 bullish hedge fund positions. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) 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 SPR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SPR were disappointed as the stock returned 1.2% 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.
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