At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards United Airlines Holdings Inc (NYSE:UAL) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is United Airlines Holdings Inc (NYSE:UAL) a healthy stock for your portfolio? Money managers were taking a pessimistic view. The number of long hedge fund positions fell by 3 in recent months. United Airlines Holdings Inc (NYSE:UAL) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 73. Our calculations also showed that UAL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing United Airlines Holdings Inc (NYSE:UAL).
What have hedge funds been doing with United Airlines Holdings Inc (NYSE:UAL)?
At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UAL over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, PAR Capital Management was the largest shareholder of United Airlines Holdings Inc (NYSE:UAL), with a stake worth $261.7 million reported as of the end of September. Trailing PAR Capital Management was Altimeter Capital Management, which amassed a stake valued at $166.2 million. D E Shaw, Citadel Investment Group, and Citadel Investment Group 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 PAR Capital Management allocated the biggest weight to United Airlines Holdings Inc (NYSE:UAL), around 10.04% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, setting aside 3.91 percent of its 13F equity portfolio to UAL.
Due to the fact that United Airlines Holdings Inc (NYSE:UAL) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds who sold off their full holdings by the end of the second quarter. At the top of the heap, Warren Buffett’s Berkshire Hathaway said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, totaling about $699.1 million in stock. Cliff Asness’s fund, AQR Capital Management, also said goodbye to its stock, about $115.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks similar to United Airlines Holdings Inc (NYSE:UAL). These stocks are Erie Indemnity Company (NASDAQ:ERIE), Medical Properties Trust, Inc. (NYSE:MPW), Advance Auto Parts, Inc. (NYSE:AAP), NetApp Inc. (NASDAQ:NTAP), Darden Restaurants, Inc. (NYSE:DRI), HubSpot Inc (NYSE:HUBS), and Avantor, Inc. (NYSE:AVTR). All of these stocks’ market caps match UAL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERIE | 14 | 42805 | -3 |
| MPW | 17 | 162185 | 1 |
| AAP | 47 | 1507053 | 9 |
| NTAP | 25 | 465896 | -1 |
| DRI | 49 | 1202504 | -3 |
| HUBS | 41 | 867564 | 14 |
| AVTR | 34 | 646574 | 5 |
| Average | 32.4 | 699226 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $917 million in UAL’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. United Airlines Holdings Inc (NYSE:UAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UAL is 51.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately UAL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UAL were disappointed as the stock returned 4% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
