Is Air Lease Corp (AL) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Air Lease Corp (NYSE:AL).

Is Air Lease Corp (NYSE:AL) going to take off soon? The smart money was buying. The number of bullish hedge fund bets went up by 3 lately. Air Lease Corp (NYSE:AL) was in 27 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that AL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 24 hedge funds in our database with AL positions at the end of the fourth quarter.

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a gander at the recent hedge fund action regarding Air Lease Corp (NYSE:AL).

Do Hedge Funds Think AL Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the fourth quarter of 2020. By comparison, 20 hedge funds held shares or bullish call options in AL a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is AL A Good Stock To Buy?

More specifically, Windacre Partnership was the largest shareholder of Air Lease Corp (NYSE:AL), with a stake worth $458.6 million reported as of the end of March. Trailing Windacre Partnership was Lyrical Asset Management, which amassed a stake valued at $177.2 million. Royce & Associates, Basswood Capital, and Holocene Advisors 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 Windacre Partnership allocated the biggest weight to Air Lease Corp (NYSE:AL), around 11.41% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, dishing out 2.38 percent of its 13F equity portfolio to AL.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Air Lease Corp (NYSE:AL) headfirst. Jade Capital Advisors, managed by Robert Vincent McHugh, initiated the largest position in Air Lease Corp (NYSE:AL). Jade Capital Advisors had $5.9 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.9 million position during the quarter. The other funds with brand new AL positions are Greg Eisner’s Engineers Gate Manager, Donald Sussman’s Paloma Partners, and Jinghua Yan’s TwinBeech Capital.

Let’s go over hedge fund activity in other stocks similar to Air Lease Corp (NYSE:AL). We will take a look at Omnicell, Inc. (NASDAQ:OMCL), South State Corporation (NASDAQ:SSB), Valley National Bancorp (NYSE:VLY), Q2 Holdings Inc (NYSE:QTWO), Alliance Data Systems Corporation (NYSE:ADS), Alteryx, Inc. (NYSE:AYX), and Iridium Communications Inc. (NASDAQ:IRDM). This group of stocks’ market values are closest to AL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMCL 19 73328 -1
SSB 24 252240 7
VLY 17 87726 0
QTWO 26 248123 3
ADS 36 1420743 4
AYX 35 749927 -7
IRDM 22 605499 4
Average 25.6 491084 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $917 million in AL’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Valley National Bancorp (NYSE:VLY) is the least popular one with only 17 bullish hedge fund positions. Air Lease Corp (NYSE:AL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AL is 58.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately AL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AL were disappointed as the stock returned -13.5% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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