“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2018. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as FactSet Research Systems Inc. (NYSE:FDS), VICI Properties Inc. (NYSE:VICI), and Qorvo Inc (NASDAQ:QRVO) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Let’s take a look at the new hedge fund action encompassing Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
How are hedge funds trading Spirit AeroSystems Holdings, Inc. (NYSE:SPR)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPR over the last 14 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Darsana Capital Partners was the largest shareholder of Spirit AeroSystems Holdings, Inc. (NYSE:SPR), with a stake worth $486.6 million reported as of the end of September. Trailing Darsana Capital Partners was Hound Partners, which amassed a stake valued at $353.4 million. Scopia Capital, AQR Capital Management, and OZ Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their positions entirely by the end of the third quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $30.9 million in stock. Charles Davidson and Joseph Jacobs’s fund, Wexford Capital, also sold off its stock, about $14 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Spirit AeroSystems Holdings, Inc. (NYSE:SPR). These stocks are FactSet Research Systems Inc. (NYSE:FDS), VICI Properties Inc. (NYSE:VICI), Qorvo Inc (NASDAQ:QRVO), and Allegion plc (NYSE:ALLE). All of these stocks’ market caps are similar to SPR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FDS | 20 | 202498 | 3 |
| VICI | 38 | 2268877 | -1 |
| QRVO | 28 | 1275628 | 0 |
| ALLE | 25 | 490844 | 10 |
| Average | 27.75 | 1059462 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1059 million. That figure was $2276 million in SPR’s case. VICI Properties Inc. (NYSE:VICI) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 20 bullish hedge fund positions. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SPR, though not to the same extent, as the stock returned 18.2% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
