Are Hedge Funds Right To Grow More Bullish On AAR Corp. (AIR)?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards AAR Corp. (NYSE:AIR) , and what that likely means for the prospects of the company and its stock.

AAR Corp. (NYSE:AIR) was in 17 hedge funds’ portfolios at the end of September. AIR investors should pay attention to an increase in enthusiasm from smart money recently. There were 16 hedge funds in our database with AIR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Atwood Oceanics, Inc. (NYSE:ATW), New Media Investment Group Inc (NYSE:NEWM), and Southside Bancshares, Inc. (NASDAQ:SBSI) to gather more data points.

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What have hedge funds been doing with AAR Corp. (NYSE:AIR)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% lift from the second quarter of 2016. However, there were a total of 20 hedge funds with a bullish position in AIR at the beginning of this year, so overall hedge fund ownership is still down over the past three quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart

Of the funds tracked by Insider Monkey, Fisher Asset Management, led by Ken Fisher, holds the most valuable position in AAR Corp. (NYSE:AIR). Fisher Asset Management has a $35 million position in the stock. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $9.9 million position. Some other members of the smart money that are bullish contain Jim Simons’ Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ken Grossman and Glen Schneider’s SG Capital Management. We should note that SG Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, key hedge funds were breaking ground themselves. SG Capital Management assembled the biggest position in AAR Corp. (NYSE:AIR). SG Capital Management had $7.2 million invested in the company at the end of the quarter. Principal Global Investors’ Columbus Circle Investors also made a $2.7 million investment in the stock during the quarter. The other funds with brand new AIR positions are John Overdeck and David Siegel’s Two Sigma Advisors and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AAR Corp. (NYSE:AIR) but similarly valued. These stocks are Atwood Oceanics, Inc. (NYSE:ATW), New Media Investment Group Inc (NYSE:NEWM), Southside Bancshares, Inc. (NASDAQ:SBSI), and 51job, Inc. (ADR) (NASDAQ:JOBS). All of these stocks’ market caps match AIR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATW 15 69638 -5
NEWM 17 68487 2
SBSI 6 33580 0
JOBS 6 26642 2

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $88 million in AIR’s case. New Media Investment Group Inc (NYSE:NEWM) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 6 bullish hedge fund positions. AAR Corp. (NYSE:AIR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NEWM might be a better candidate to consider taking a long position in.

Disclosure: None