Hedge Funds Are Selling Air Lease Corp (AL)

In this article we will check out the progression of hedge fund sentiment towards Air Lease Corp (NYSE:AL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Air Lease Corp (NYSE:AL) a buy, sell, or hold? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets dropped by 3 in recent months. Our calculations also showed that AL 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.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the fresh hedge fund action encompassing Air Lease Corp (NYSE:AL).

How have hedgies been trading Air Lease Corp (NYSE:AL)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AL over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is AL A Good Stock To Buy?

The largest stake in Air Lease Corp (NYSE:AL) was held by Windacre Partnership, which reported holding $206 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $73.8 million position. Other investors bullish on the company included Royce & Associates, Basswood Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Air Lease Corp (NYSE:AL), around 9.19% of its 13F portfolio. Tegean Capital Management is also relatively very bullish on the stock, dishing out 6.83 percent of its 13F equity portfolio to AL.

Due to the fact that Air Lease Corp (NYSE:AL) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few funds that decided to sell off their positions entirely heading into Q4. Interestingly, Bernard Selz’s Selz Capital dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $48 million in stock, and John Osterweis’s Osterweis Capital Management was right behind this move, as the fund cut about $25.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Air Lease Corp (NYSE:AL) but similarly valued. These stocks are Blackstone Mortgage Trust Inc (NYSE:BXMT), United States Cellular Corporation (NYSE:USM), AAON, Inc. (NASDAQ:AAON), and Spirit AeroSystems Holdings, Inc. (NYSE:SPR). All of these stocks’ market caps are closest to AL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BXMT 19 56818 4
USM 12 91991 -9
AAON 11 24193 4
SPR 38 745596 -10
Average 20 229650 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $379 million in AL’s case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 11 bullish hedge fund positions. Air Lease Corp (NYSE:AL) is not the least popular stock in this group but hedge fund interest is still below 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on AL as the stock returned 41.4% during the second quarter and outperformed the market by an even larger margin.

Follow Air Lease Corp (NYSE:AL)

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