We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Fly Leasing Ltd (NYSE:FLY) and determine whether hedge funds skillfully traded this stock.
Is Fly Leasing Ltd (NYSE:FLY) undervalued? The smart money was selling. The number of long hedge fund bets shrunk by 1 lately. Our calculations also showed that FLY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FLY was in 13 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with FLY positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are plenty of gauges stock traders have at their disposal to analyze publicly traded companies. A duo of the most useful gauges are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top investment managers can outclass the S&P 500 by a superb margin (see the details here).
Nathaniel August of Mangrove Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the fresh hedge fund action surrounding Fly Leasing Ltd (NYSE:FLY).
Hedge fund activity in Fly Leasing Ltd (NYSE:FLY)
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in FLY a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Mangrove Partners was the largest shareholder of Fly Leasing Ltd (NYSE:FLY), with a stake worth $5.8 million reported as of the end of September. Trailing Mangrove Partners was Basswood Capital, which amassed a stake valued at $3.8 million. D E Shaw, Arrowstreet Capital, and Marshall Wace LLP 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 Mangrove Partners allocated the biggest weight to Fly Leasing Ltd (NYSE:FLY), around 0.8% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 0.44 percent of its 13F equity portfolio to FLY.
Because Fly Leasing Ltd (NYSE:FLY) has faced falling interest from the aggregate hedge fund industry, we can see that there exists a select few funds that decided to sell off their positions entirely in the first quarter. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management cut the biggest stake of all the hedgies watched by Insider Monkey, worth close to $0.8 million in stock. Minhua Zhang’s fund, Weld Capital Management, also cut its stock, about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the first quarter.
Let’s also examine hedge fund activity in other stocks similar to Fly Leasing Ltd (NYSE:FLY). We will take a look at Eros International plc (NYSE:EROS), Callon Petroleum Company (NYSE:CPE), Alphatec Holdings Inc (NASDAQ:ATEC), and CTO Realty Growth Inc (NYSE:CTO). All of these stocks’ market caps are closest to FLY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EROS | 8 | 18249 | -3 |
| CPE | 17 | 12018 | -10 |
| ATEC | 15 | 22025 | 1 |
| CTO | 10 | 22599 | -2 |
| Average | 12.5 | 18723 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $24 million in FLY’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Eros International plc (NYSE:EROS) is the least popular one with only 8 bullish hedge fund positions. Fly Leasing Ltd (NYSE:FLY) 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately FLY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FLY were disappointed as the stock returned 18.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
