Were Hedge Funds Right About Piling Into JetBlue Airways Corporation (JBLU)?

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 JetBlue Airways Corporation (NASDAQ:JBLU) and determine whether hedge funds skillfully traded this stock.

JetBlue Airways Corporation (NASDAQ:JBLU) shareholders have witnessed an increase in support from the world’s most elite money managers lately. Our calculations also showed that JBLU 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.

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 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 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.

Paul Reeder of PAR Capital Management

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. Keeping this in mind we’re going to view the latest hedge fund action encompassing JetBlue Airways Corporation (NASDAQ:JBLU).

What have hedge funds been doing with JetBlue Airways Corporation (NASDAQ:JBLU)?

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards JBLU over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, PAR Capital Management held the most valuable stake in JetBlue Airways Corporation (NASDAQ:JBLU), which was worth $58 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $36.5 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group 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 PAR Capital Management allocated the biggest weight to JetBlue Airways Corporation (NASDAQ:JBLU), around 2.46% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, earmarking 1.87 percent of its 13F equity portfolio to JBLU.

Now, key hedge funds were leading the bulls’ herd. SRS Investment Management, managed by Karthik Sarma, assembled the most valuable position in JetBlue Airways Corporation (NASDAQ:JBLU). SRS Investment Management had $8 million invested in the company at the end of the quarter. Quincy Lee’s Ancient Art (Teton Capital) also initiated a $6.5 million position during the quarter. The other funds with brand new JBLU positions are Anna Nikolayevsky’s Axel Capital Management, Chuck Royce’s Royce & Associates, and Sara Nainzadeh’s Centenus Global Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as JetBlue Airways Corporation (NASDAQ:JBLU) but similarly valued. We will take a look at Lazard Ltd (NYSE:LAZ), Valvoline Inc. (NYSE:VVV), Compania Cervecerias Unidas S.A. (NYSE:CCU), and Hutchison China MediTech Limited (NASDAQ:HCM). This group of stocks’ market values resemble JBLU’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $190 million in JBLU’s case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 6 bullish hedge fund positions. JetBlue Airways Corporation (NASDAQ:JBLU) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on JBLU, though not to the same extent, as the stock returned 21.8% during the second quarter and outperformed the market as well.

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