There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Aircastle Limited (NYSE:AYR).
Aircastle Limited (NYSE:AYR) has seen a decrease in hedge fund interest of late. AYR was in 13 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 15 hedge funds in our database with AYR holdings at the end of the previous quarter. Our calculations also showed that AYR isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the new hedge fund action encompassing Aircastle Limited (NYSE:AYR).
What have hedge funds been doing with Aircastle Limited (NYSE:AYR)?
At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AYR over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in Aircastle Limited (NYSE:AYR), which was worth $51.7 million at the end of the third quarter. On the second spot was Goodnow Investment Group which amassed $15.8 million worth of shares. Moreover, Millennium Management, Two Sigma Advisors, and Holocene Advisors were also bullish on Aircastle Limited (NYSE:AYR), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Aircastle Limited (NYSE:AYR) has faced falling interest from hedge fund managers, logic holds that there is a sect of fund managers that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that Jim Simons’s Renaissance Technologies said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, totaling close to $1.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $0.6 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Aircastle Limited (NYSE:AYR). We will take a look at AAR Corp. (NYSE:AIR), Gray Television, Inc. (NYSE:GTN), Oi SA (NYSE:OIBR), and Asbury Automotive Group, Inc. (NYSE:ABG). This group of stocks’ market caps resemble AYR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $80 million in AYR’s case. Gray Television, Inc. (NYSE:GTN) is the most popular stock in this table. On the other hand AAR Corp. (NYSE:AIR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Aircastle Limited (NYSE:AYR) is even less popular than AIR. Hedge funds dodged a bullet by taking a bearish stance towards AYR. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AYR wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); AYR investors were disappointed as the stock returned 14.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.