Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was in 48 hedge funds’ portfolios at the end of the fourth quarter of 2019. SPR investors should pay attention to an increase in hedge fund sentiment in recent months. There were 39 hedge funds in our database with SPR holdings at the end of the previous quarter. Our calculations also showed that SPR 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.
Cliff Asness of AQR Capital Management
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. With all of this in mind let’s view the recent hedge fund action surrounding Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
Hedge fund activity in Spirit AeroSystems Holdings, Inc. (NYSE:SPR)
At the end of the fourth quarter, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in SPR a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was held by AQR Capital Management, which reported holding $347.4 million worth of stock at the end of September. It was followed by OZ Management with a $330.2 million position. Other investors bullish on the company included Darsana Capital Partners, Scopia Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to Spirit AeroSystems Holdings, Inc. (NYSE:SPR), around 15.53% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, dishing out 11.18 percent of its 13F equity portfolio to SPR.
Now, some big names were leading the bulls’ herd. Owl Creek Asset Management, managed by Jeffrey Altman, created the most outsized position in Spirit AeroSystems Holdings, Inc. (NYSE:SPR). Owl Creek Asset Management had $18.6 million invested in the company at the end of the quarter. Avi Fruchter’s Anavon Capital also initiated a $3.8 million position during the quarter. The other funds with new positions in the stock are Charles Davidson and Joseph Jacobs’s Wexford Capital, Michael Gelband’s ExodusPoint Capital, and Matthew Tewksbury’s Stevens Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Spirit AeroSystems Holdings, Inc. (NYSE:SPR). We will take a look at The Stars Group Inc. (NASDAQ:TSG), Gardner Denver Holdings, Inc. (NYSE:GDI), GCI Liberty, Inc. (NASDAQ:GLIBA), and MongoDB, Inc. (NASDAQ:MDB). This group of stocks’ market caps are closest to SPR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TSG | 45 | 1366436 | 11 |
| GDI | 22 | 232648 | 3 |
| GLIBA | 47 | 2304829 | 10 |
| MDB | 32 | 778851 | 1 |
| Average | 36.5 | 1170691 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1171 million. That figure was $1875 million in SPR’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Gardner Denver Holdings, Inc. (NYSE:GDI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Spirit AeroSystems Holdings, Inc. (NYSE:SPR) 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 lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately SPR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SPR were disappointed as the stock returned -42.2% during the first two months of 2020 (through March 9th) 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.
