Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Southwest Airlines Co. (NYSE:LUV) from the perspective of those elite funds.
Southwest Airlines Co. (NYSE:LUV) was in 36 hedge funds’ portfolios at the end of September. LUV has experienced an increase in enthusiasm from smart money recently. There were 33 hedge funds in our database with LUV holdings at the end of the previous quarter. Our calculations also showed that LUV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most investors, hedge funds are viewed as worthless, outdated financial vehicles of the past. While there are over 8000 funds trading at the moment, We hone in on the leaders of this club, approximately 750 funds. Most estimates calculate that this group of people oversee the majority of the smart money’s total capital, and by paying attention to their first-class investments, Insider Monkey has found numerous investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the latest hedge fund action regarding Southwest Airlines Co. (NYSE:LUV).
How are hedge funds trading Southwest Airlines Co. (NYSE:LUV)?
Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in LUV a year ago. 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, Berkshire Hathaway held the most valuable stake in Southwest Airlines Co. (NYSE:LUV), which was worth $2897.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $204.3 million worth of shares. Holocene Advisors, Renaissance Technologies, 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 Bristol Gate Capital Partners allocated the biggest weight to Southwest Airlines Co. (NYSE:LUV), around 4.72% of its portfolio. Water Street Capital is also relatively very bullish on the stock, setting aside 3.75 percent of its 13F equity portfolio to LUV.
As aggregate interest increased, key hedge funds have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, created the most outsized position in Southwest Airlines Co. (NYSE:LUV). Holocene Advisors had $133.2 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $38.8 million investment in the stock during the quarter. The following funds were also among the new LUV investors: Steve Cohen’s Point72 Asset Management, Sander Gerber’s Hudson Bay Capital Management, and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Southwest Airlines Co. (NYSE:LUV) but similarly valued. These stocks are Electronic Arts Inc. (NASDAQ:EA), Amphenol Corporation (NYSE:APH), Nutrien Ltd. (NYSE:NTR), and Alcon Inc. (NYSE:ALC). All of these stocks’ market caps are closest to LUV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EA | 64 | 2089888 | 5 |
| APH | 31 | 758511 | 6 |
| NTR | 25 | 174521 | 3 |
| ALC | 22 | 482231 | 4 |
| Average | 35.5 | 876288 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $876 million. That figure was $3855 million in LUV’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 22 bullish hedge fund positions. Southwest Airlines Co. (NYSE:LUV) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on LUV, though not to the same extent, as the stock returned 6.7% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
