We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Air Lease Corp (NYSE:AL).
Air Lease Corp (NYSE:AL) has seen a decrease in hedge fund sentiment lately. Our calculations also showed that AL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding Air Lease Corp (NYSE:AL).
How are hedge funds trading Air Lease Corp (NYSE:AL)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AL over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Air Lease Corp (NYSE:AL) was held by Lyrical Asset Management, which reported holding $174.7 million worth of stock at the end of September. It was followed by Royce & Associates with a $118.5 million position. Other investors bullish on the company included Selz Capital, Citadel Investment Group, and Basswood Capital. In terms of the portfolio weights assigned to each position Selz Capital allocated the biggest weight to Air Lease Corp (NYSE:AL), around 8.42% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 2.67 percent of its 13F equity portfolio to AL.
Judging by the fact that Air Lease Corp (NYSE:AL) has faced bearish sentiment from hedge fund managers, it’s safe to say that there were a few funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Thomas G. Maheras’s Tegean Capital Management dumped the biggest investment of all the hedgies followed by Insider Monkey, totaling about $6.7 million in stock, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS was right behind this move, as the fund dropped about $3.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Air Lease Corp (NYSE:AL) but similarly valued. We will take a look at Eaton Vance Corp (NYSE:EV), JetBlue Airways Corporation (NASDAQ:JBLU), Smartsheet Inc. (NYSE:SMAR), and First Industrial Realty Trust, Inc. (NYSE:FR). All of these stocks’ market caps match AL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EV | 24 | 57872 | 7 |
| JBLU | 35 | 668369 | 9 |
| SMAR | 44 | 1652600 | -6 |
| FR | 19 | 204822 | 2 |
| Average | 30.5 | 645916 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $646 million. That figure was $465 million in AL’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 19 bullish hedge fund positions. Air Lease Corp (NYSE:AL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AL investors were disappointed as the stock returned -43.7% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
