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Hedge Funds Cashing Out Of Spirit AeroSystems Holdings, Inc. (SPR)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Spirit AeroSystems Holdings, Inc. (NYSE:SPR) based on those filings.

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was in 38 hedge funds’ portfolios at the end of the first quarter of 2020. SPR has experienced a decrease in hedge fund sentiment recently. There were 48 hedge funds in our database with SPR holdings at the end of the previous quarter. Our calculations also showed that SPR 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 51 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.

Jeremy Mindich - Scopia Capital

Jeremy Mindich of Scopia Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities 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 we’re going to go over the fresh hedge fund action regarding Spirit AeroSystems Holdings, Inc. (NYSE:SPR).

How are hedge funds trading Spirit AeroSystems Holdings, Inc. (NYSE:SPR)?

At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in SPR a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Darsana Capital Partners held the most valuable stake in Spirit AeroSystems Holdings, Inc. (NYSE:SPR), which was worth $197.7 million at the end of the third quarter. On the second spot was OZ Management which amassed $120.2 million worth of shares. Scopia Capital, AQR Capital Management, 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 Scopia Capital allocated the biggest weight to Spirit AeroSystems Holdings, Inc. (NYSE:SPR), around 9.77% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, setting aside 9.35 percent of its 13F equity portfolio to SPR.

Due to the fact that Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their entire stakes by the end of the third quarter. Intriguingly, Jeffrey Altman’s Owl Creek Asset Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $18.6 million in stock. James Woodson Davis’s fund, Woodson Capital Management, also said goodbye to its stock, about $10.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 10 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Spirit AeroSystems Holdings, Inc. (NYSE:SPR) but similarly valued. These stocks are First Horizon National Corporation (NYSE:FHN), MasTec, Inc. (NYSE:MTZ), AutoNation, Inc. (NYSE:AN), and Avnet, Inc. (NASDAQ:AVT). This group of stocks’ market valuations are similar to SPR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FHN 31 242866 4
MTZ 24 99669 -17
AN 27 256418 -4
AVT 24 453381 -9
Average 26.5 263084 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $746 million in SPR’s case. First Horizon National Corporation (NYSE:FHN) is the most popular stock in this table. On the other hand MasTec, Inc. (NYSE:MTZ) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Spirit AeroSystems Holdings, Inc. (NYSE:SPR) 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 gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately SPR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPR were disappointed as the stock returned -9.4% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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