Hedge Funds Dipping Their Toes Back Into Alaska Air Group (ALK)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Alaska Air Group, Inc. (NYSE:ALK) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Alaska Air Group, Inc. (NYSE:ALK) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. ALK has experienced an increase in support from the world’s most elite money managers recently. There were 27 hedge funds in our database with ALK positions at the end of the first quarter. Our calculations also showed that ALK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 56 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.

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing Alaska Air Group, Inc. (NYSE:ALK).

How have hedgies been trading Alaska Air Group, Inc. (NYSE:ALK)?

At Q2’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in ALK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Alaska Air Group, Inc. (NYSE:ALK), which was worth $91.9 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $75.6 million worth of shares. PAR Capital Management, AQR Capital Management, 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 Hi-Line Capital Management allocated the biggest weight to Alaska Air Group, Inc. (NYSE:ALK), around 1.7% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 1.39 percent of its 13F equity portfolio to ALK.

As one would reasonably expect, key money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Alaska Air Group, Inc. (NYSE:ALK). Marshall Wace LLP had $6.5 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $3.7 million investment in the stock during the quarter. The following funds were also among the new ALK investors: Dmitry Balyasny’s Balyasny Asset Management, Sander Gerber’s Hudson Bay Capital Management, and Parvinder Thiara’s Athanor Capital.

Let’s check out hedge fund activity in other stocks similar to Alaska Air Group, Inc. (NYSE:ALK). These stocks are Cousins Properties Incorporated (NYSE:CUZ), Agora, Inc. (NASDAQ:API), Legg Mason, Inc. (NYSE:LM), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Eaton Vance Corp (NYSE:EV), IDACORP Inc (NYSE:IDA), and Parsley Energy Inc (NYSE:PE). All of these stocks’ market caps are similar to ALK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $296 million in ALK’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 17 bullish hedge fund positions. Alaska Air Group, Inc. (NYSE:ALK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALK is 55. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on ALK as the stock returned 14.5% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.