Were Hedge Funds Right About Dumping American Airlines Group Inc (AAL)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded American Airlines Group Inc (NASDAQ:AAL) and determine whether the smart money was really smart about this stock.

American Airlines Group Inc (NASDAQ:AAL) has seen a decrease in hedge fund interest recently. AAL was in 36 hedge funds’ portfolios at the end of the first quarter of 2020. There were 41 hedge funds in our database with AAL positions at the end of the previous quarter. Our calculations also showed that AAL 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller of Miller Value 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. With all of this in mind let’s take a look at the key hedge fund action surrounding American Airlines Group Inc (NASDAQ:AAL).

Hedge fund activity in American Airlines Group Inc (NASDAQ:AAL)

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the fourth quarter of 2019. By comparison, 41 hedge funds held shares or bullish call options in AAL a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in American Airlines Group Inc (NASDAQ:AAL), which was worth $510.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $65.1 million worth of shares. Cyrus Capital Partners, Hosking Partners, and Masters Capital Management 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 Cyrus Capital Partners allocated the biggest weight to American Airlines Group Inc (NASDAQ:AAL), around 17.11% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, setting aside 2.07 percent of its 13F equity portfolio to AAL.

Judging by the fact that American Airlines Group Inc (NASDAQ:AAL) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that slashed their full holdings heading into Q4. It’s worth mentioning that Alex Snow’s Lansdowne Partners said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, valued at close to $186.6 million in stock. Bill Miller’s fund, Miller Value Partners, also dropped its stock, about $77.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as American Airlines Group Inc (NASDAQ:AAL) but similarly valued. We will take a look at CubeSmart (NYSE:CUBE), Pearson PLC (NYSE:PSO), Wix.Com Ltd (NASDAQ:WIX), and Lincoln National Corporation (NYSE:LNC). All of these stocks’ market caps resemble AAL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $349 million. That figure was $682 million in AAL’s case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks American Airlines Group Inc (NASDAQ:AAL) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately AAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AAL were disappointed as the stock returned 7.2% during the second quarter 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 most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.