Hedge Funds Are Selling Southwest Airlines Co. (LUV)

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Southwest Airlines Co. (NYSE:LUV).

Is Southwest Airlines Co. (NYSE:LUV) an excellent stock to buy now? Hedge funds are becoming less confident. The number of long hedge fund bets retreated by 2 recently. Our calculations also showed that LUV isn’t among the 30 most popular stocks among hedge funds.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Southwest Airlines Co. (NYSE:LUV).

How are hedge funds trading Southwest Airlines Co. (NYSE:LUV)?

Heading into the third quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the first quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in LUV a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Warren Buffett

Among these funds, Berkshire Hathaway held the most valuable stake in Southwest Airlines Co. (NYSE:LUV), which was worth $2724.3 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $281.7 million worth of shares. Moreover, D E Shaw, Millennium Management, and Water Street Capital were also bullish on Southwest Airlines Co. (NYSE:LUV), allocating a large percentage of their portfolios to this stock.

Because Southwest Airlines Co. (NYSE:LUV) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few funds that slashed their entire stakes heading into Q3. At the top of the heap, Gregg Moskowitz’s Interval Partners cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $27.9 million in stock. Robert Polak’s fund, Anchor Bolt Capital, also cut its stock, about $7.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Southwest Airlines Co. (NYSE:LUV). These stocks are PPG Industries, Inc. (NYSE:PPG), Twitter Inc (NYSE:TWTR), SunTrust Banks, Inc. (NYSE:STI), and Motorola Solutions Inc (NYSE:MSI). This group of stocks’ market caps resemble LUV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPG 27 929701 4
TWTR 47 1637777 1
STI 31 912417 9
MSI 25 867800 -4
Average 32.5 1086924 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1087 million. That figure was $3400 million in LUV’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Motorola Solutions Inc (NYSE:MSI) is the least popular one with only 25 bullish hedge fund positions. Southwest Airlines Co. (NYSE:LUV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on LUV as the stock returned 6.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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