Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Delta Air Lines, Inc. (NYSE:DAL).
Is Delta Air Lines, Inc. (NYSE:DAL) an exceptional investment right now? The smart money is getting less bullish. The number of long hedge fund positions retreated by 1 recently. Our calculations also showed that DAL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 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.
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a peek at the fresh hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).
How have hedgies been trading Delta Air Lines, Inc. (NYSE:DAL)?
At Q4’s end, a total of 70 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from the previous quarter. By comparison, 73 hedge funds held shares or bullish call options in DAL a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of Delta Air Lines, Inc. (NYSE:DAL), with a stake worth $4146.8 million reported as of the end of September. Trailing Berkshire Hathaway was Lansdowne Partners, which amassed a stake valued at $646.3 million. AQR Capital Management, Two Sigma Advisors, and PAR Capital Management 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 Lansdowne Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 17.49% of its 13F portfolio. Cyrus Capital Partners is also relatively very bullish on the stock, setting aside 17.43 percent of its 13F equity portfolio to DAL.
Judging by the fact that Delta Air Lines, Inc. (NYSE:DAL) has witnessed falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that slashed their positions entirely heading into Q4. At the top of the heap, Brandon Haley’s Holocene Advisors dropped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $33 million in stock, and David Keidan’s Buckingham Capital Management was right behind this move, as the fund sold off about $16 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. We will take a look at Workday Inc (NYSE:WDAY), Prudential Financial Inc (NYSE:PRU), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), and Public Storage (NYSE:PSA). This group of stocks’ market values resemble DAL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WDAY | 55 | 2251111 | 11 |
| PRU | 36 | 691519 | 6 |
| BBVA | 8 | 338963 | -2 |
| PSA | 27 | 927343 | 2 |
| Average | 31.5 | 1052234 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1052 million. That figure was $7037 million in DAL’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Delta Air Lines, Inc. (NYSE:DAL) is more popular among hedge funds. 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 also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately DAL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DAL were disappointed as the stock returned -18.8% during the first two months of 2020 (through March 2nd) 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.
Disclosure: None. This article was originally published at Insider Monkey.
