Hedge Funds Are Crazy About Southwest Airlines Co. (NYSE:LUV)

Southwest Airlines Co. (NYSE:LUV) was in 21 hedge funds' portfolio at the end of December. LUV investors should be aware of an increase in enthusiasm from smart money in recent months. There were 18 hedge funds in our database with LUV positions at the end of the previous quarter.

In the eyes of most market participants, hedge funds are seen as slow, outdated financial vehicles of the past. While there are over 8000 funds in operation at the moment, we at Insider Monkey choose to focus on the moguls of this club, about 450 funds. Most estimates calculate that this group has its hands on the majority of all hedge funds' total capital, and by tracking their best equity investments, we have discovered a few investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we've began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Southwest Airlines Co. (LUV)Equally as integral, optimistic insider trading sentiment is another way to parse down the financial markets. As the old adage goes: there are plenty of reasons for an upper level exec to drop shares of his or her company, but only one, very obvious reason why they would behave bullishly. Various empirical studies have demonstrated the market-beating potential of this strategy if "monkeys" understand what to do (learn more here).

With these "truths" under our belt, let's take a glance at the key action surrounding Southwest Airlines Co. (NYSE:LUV).

What have hedge funds been doing with Southwest Airlines Co. (NYSE:LUV)?

In preparation for this year, a total of 21 of the hedge funds we track were bullish in this stock, a change of 17% from the third quarter. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes meaningfully.

Of the funds we track, Edgar Wachenheim's Greenhaven Associates had the biggest position in Southwest Airlines Co. (NYSE:LUV), worth close to $38 million, accounting for 1.1% of its total 13F portfolio. Coming in second is Diamond Hill Capital, managed by Ric Dillon, which held a $24 million position; 0% of its 13F portfolio is allocated to the stock. Some other hedgies that hold long positions include Jim Simons's Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Cliff Asness's AQR Capital Management.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, established the biggest position in Southwest Airlines Co. (NYSE:LUV). Bridgewater Associates had 4 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $3 million position during the quarter. The following funds were also among the new LUV investors: Andy Redleaf's Whitebox Advisors, Mike Vranos's Ellington, and Charles Davidson's Wexford Capital.

What have insiders been doing with Southwest Airlines Co. (NYSE:LUV)?

Bullish insider trading is at its handiest when the company in focus has seen transactions within the past half-year. Over the last six-month time period, Southwest Airlines Co. (NYSE:LUV) has experienced zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

With the results demonstrated by Insider Monkey's research, retail investors should always watch hedge fund and insider trading activity, and Southwest Airlines Co. (NYSE:LUV) is an important part of this process.

Click here to learn more about Insider Monkey's Hedge Fund Newsletter

Insider Monkey's small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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