It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Hawaiian Holdings, Inc. (NASDAQ:HA).
Hawaiian Holdings, Inc. (NASDAQ:HA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of March. 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 Hudson Ltd. (NYSE:HUD), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), and Autolus Therapeutics plc (NASDAQ:AUTL) to gather more data points.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Martin Whitman of Third Avenue Management
Let’s take a peek at the new hedge fund action regarding Hawaiian Holdings, Inc. (NASDAQ:HA).
What have hedge funds been doing with Hawaiian Holdings, Inc. (NASDAQ:HA)?
At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in HA a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Hawaiian Holdings, Inc. (NASDAQ:HA) was held by Royce & Associates, which reported holding $37.1 million worth of stock at the end of March. It was followed by Third Avenue Management with a $37.1 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Two Sigma Advisors.
Seeing as Hawaiian Holdings, Inc. (NASDAQ:HA) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of fund managers that slashed their positions entirely in the third quarter. At the top of the heap, Gilchrist Berg’s Water Street Capital cut the biggest investment of the 700 funds monitored by Insider Monkey, comprising close to $3.3 million in stock. Brandon Haley’s fund, Holocene Advisors, also cut its stock, about $1.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hawaiian Holdings, Inc. (NASDAQ:HA) but similarly valued. These stocks are Hudson Ltd. (NYSE:HUD), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), Autolus Therapeutics plc (NASDAQ:AUTL), and Criteo SA (NASDAQ:CRTO). This group of stocks’ market valuations are closest to HA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HUD | 15 | 31634 | 3 |
| HOLI | 14 | 81137 | -1 |
| AUTL | 6 | 432143 | 0 |
| CRTO | 9 | 148982 | -3 |
| Average | 11 | 173474 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $103 million in HA’s case. Hudson Ltd. (NYSE:HUD) is the most popular stock in this table. On the other hand Autolus Therapeutics plc (NASDAQ:AUTL) is the least popular one with only 6 bullish hedge fund positions. Hawaiian Holdings, Inc. (NASDAQ:HA) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HA were disappointed as the stock returned -0.6% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
