Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards AerCap Holdings N.V. (NYSE:AER).
Is AerCap Holdings N.V. (NYSE:AER) the right pick for your portfolio? Hedge funds are taking a bullish view. The number of long hedge fund positions rose by 5 during the fourth quarter. Our calculations also showed that AER isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the latest hedge fund action encompassing AerCap Holdings N.V. (NYSE:AER).
What does smart money think about AerCap Holdings N.V. (NYSE:AER)?
At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AER over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eagle Capital Management was the largest shareholder of AerCap Holdings N.V. (NYSE:AER), with a stake worth $540.4 million reported as of the end of September. Trailing Eagle Capital Management was Lyrical Asset Management, which amassed a stake valued at $336.4 million. Greenlight Capital, Arrowstreet Capital, and GLG Partners 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 Greenlight Capital allocated the biggest weight to AerCap Holdings N.V. (NYSE:AER), around 14.6% of its 13F portfolio. Cobalt Capital Management is also relatively very bullish on the stock, designating 7.7 percent of its 13F equity portfolio to AER.
Now, key money managers have jumped into AerCap Holdings N.V. (NYSE:AER) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the biggest position in AerCap Holdings N.V. (NYSE:AER). Two Sigma Advisors had $5.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Minhua Zhang’s Weld Capital Management, and Cliff Asness’s AQR Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to AerCap Holdings N.V. (NYSE:AER). These stocks are Catalent Inc (NYSE:CTLT), Voya Financial Inc (NYSE:VOYA), Zayo Group Holdings Inc (NYSE:ZAYO), and The Mosaic Company (NYSE:MOS). All of these stocks’ market caps match AER’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTLT | 21 | 390050 | -8 |
| VOYA | 43 | 1130069 | 3 |
| ZAYO | 52 | 2277778 | -1 |
| MOS | 29 | 695479 | 10 |
| Average | 36.25 | 1123344 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1123 million. That figure was $1424 million in AER’s case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand Catalent Inc (NYSE:CTLT) is the least popular one with only 21 bullish hedge fund positions. AerCap Holdings N.V. (NYSE:AER) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately AER wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AER investors were disappointed as the stock returned -66.1% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
