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Did Hedge Funds Make The Right Call On AerCap Holdings N.V. (AER) ?

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 AerCap Holdings N.V. (NYSE:AER) and determine whether the smart money was really smart about this stock.

Is AerCap Holdings N.V. (NYSE:AER) going to take off soon? Investors who are in the know were taking a bearish view. The number of long hedge fund bets dropped by 4 in recent months. Our calculations also showed that AER 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

GREENLIGHT CAPITAL

David Einhorn of Greenlight Capital

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. Now we’re going to take a peek at the fresh hedge fund action regarding AerCap Holdings N.V. (NYSE:AER).

How are hedge funds trading AerCap Holdings N.V. (NYSE:AER)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AER over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Eagle Capital Management held the most valuable stake in AerCap Holdings N.V. (NYSE:AER), which was worth $200.9 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $166.2 million worth of shares. Greenlight Capital, Arrowstreet Capital, and Basswood Capital 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 Greenlight Capital allocated the biggest weight to AerCap Holdings N.V. (NYSE:AER), around 10.62% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, setting aside 10.19 percent of its 13F equity portfolio to AER.

Since AerCap Holdings N.V. (NYSE:AER) has experienced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds who were dropping their full holdings in the first quarter. Interestingly, Charles Davidson and Joseph Jacobs’s Wexford Capital cut the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $9.8 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $3.1 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to AerCap Holdings N.V. (NYSE:AER). We will take a look at BOK Financial Corporation (NASDAQ:BOKF), FirstCash, Inc. (NASDAQ:FCFS), Anixter International Inc. (NYSE:AXE), and Emergent Biosolutions Inc (NYSE:EBS). This group of stocks’ market values are similar to AER’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOKF 22 145009 7
FCFS 16 107030 0
AXE 21 541008 -22
EBS 17 114485 5
Average 19 226883 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $616 million in AER’s case. BOK Financial Corporation (NASDAQ:BOKF) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks AerCap Holdings N.V. (NYSE:AER) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on AER as the stock returned 35.1% in Q2 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.