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Air Transport Services Group Inc. (ATSG): Hedge Funds Taking Some Chips Off The Table

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Air Transport Services Group Inc. (NASDAQ:ATSG) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Air Transport Services Group Inc. (NASDAQ:ATSG) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Air Transport Services Group Inc. (NASDAQ:ATSG) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 22. Our calculations also showed that ATSG isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Platt BlueCrest Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s check out the new hedge fund action encompassing Air Transport Services Group Inc. (NASDAQ:ATSG).

What have hedge funds been doing with Air Transport Services Group Inc. (NASDAQ:ATSG)?

At second quarter’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ATSG over the last 20 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is ATSG A Good Stock To Buy?

More specifically, Moab Capital Partners was the largest shareholder of Air Transport Services Group Inc. (NASDAQ:ATSG), with a stake worth $42.7 million reported as of the end of September. Trailing Moab Capital Partners was Polar Capital, which amassed a stake valued at $27.7 million. Private Capital Management, Intrinsic Edge Capital, and D E Shaw 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 Moab Capital Partners allocated the biggest weight to Air Transport Services Group Inc. (NASDAQ:ATSG), around 37.45% of its 13F portfolio. Private Capital Management is also relatively very bullish on the stock, earmarking 4.22 percent of its 13F equity portfolio to ATSG.

Because Air Transport Services Group Inc. (NASDAQ:ATSG) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their positions entirely last quarter. Interestingly, Highbridge Capital Management sold off the largest stake of the 750 funds monitored by Insider Monkey, worth about $16.6 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund cut about $2.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Air Transport Services Group Inc. (NASDAQ:ATSG). These stocks are DRDGOLD Ltd. (NYSE:DRD), Ameresco Inc (NYSE:AMRC), Theravance Biopharma Inc (NASDAQ:TBPH), Tri Continental Corporation (NYSE:TY), BancFirst Corporation (NASDAQ:BANF), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Axos Financial, Inc. (NYSE:AX). This group of stocks’ market valuations resemble ATSG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DRD 2 27095 0
AMRC 13 73514 2
TBPH 18 352222 4
TY 3 1424 0
BANF 13 34034 1
ROIC 20 88018 2
AX 17 45679 5
Average 12.3 88855 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $129 million in ATSG’s case. Retail Opportunity Investments Corp (NASDAQ:ROIC) is the most popular stock in this table. On the other hand DRDGOLD Ltd. (NYSE:DRD) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Air Transport Services Group Inc. (NASDAQ:ATSG) is more popular among hedge funds. Our overall hedge fund sentiment score for ATSG is 82.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on ATSG as the stock returned 12.5% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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