Were Hedge Funds Right About Warming Up To AerCap Holdings N.V. (AER) ?
World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
AerCap Holdings N.V. (NYSE:AER) has experienced an increase in enthusiasm from smart money recently. AER was in 27 hedge funds' portfolios at the end of June. There were 23 hedge funds in our database with AER positions at the end of the previous quarter. Our calculations also showed that AER 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 fresh hedge fund action surrounding AerCap Holdings N.V. (NYSE:AER).
Hedge fund activity in AerCap Holdings N.V. (NYSE:AER)
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AER over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Boykin Curry's Eagle Capital Management has the biggest position in AerCap Holdings N.V. (NYSE:AER), worth close to $418.6 million, comprising 1.5% of its total 13F portfolio. Coming in second is David Einhorn of Greenlight Capital, with a $181.2 million position; 13.4% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions consist of Matthew Lindenbaum's Basswood Capital, Noam Gottesman's GLG Partners and Phill Gross and Robert Atchinson's Adage Capital Management.
Now, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, established the biggest position in AerCap Holdings N.V. (NYSE:AER). Millennium Management had $14.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $7 million position during the quarter. The other funds with brand new AER positions are Dmitry Balyasny's Balyasny Asset Management, Andy Redleaf's Whitebox Advisors, and Renaissance Technologies.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as AerCap Holdings N.V. (NYSE:AER) but similarly valued. These stocks are Planet Fitness Inc (NYSE:PLNT), Hubbell Incorporated (NYSE:HUBB), Woodward Inc (NASDAQ:WWD), and bluebird bio Inc (NASDAQ:BLUE). All of these stocks' market caps match AER's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLNT,38,661398,13 HUBB,18,345023,-3 WWD,28,353160,8 BLUE,22,155991,-3 Average,26.5,378893,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $805 million in AER's case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Hubbell Incorporated (NYSE:HUBB) is the least popular one with only 18 bullish hedge fund positions. AerCap Holdings N.V. (NYSE:AER) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AER, though not to the same extent, as the stock returned 5.3% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
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