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Is Fly Leasing Ltd (FLY) Going to Burn These Hedge Funds?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Fly Leasing Ltd (NYSE:FLY).

Hedge fund interest in Fly Leasing Ltd (NYSE:FLY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FLY to other stocks including B. Riley Financial, Inc. (NASDAQ:RILY), Luther Burbank Corporation (NASDAQ:LBC), and Voyager Therapeutics, Inc. (NASDAQ:VYGR) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the latest hedge fund action encompassing Fly Leasing Ltd (NYSE:FLY).

What have hedge funds been doing with Fly Leasing Ltd (NYSE:FLY)?

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FLY over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Fly Leasing Ltd (NYSE:FLY) was held by Mangrove Partners, which reported holding $26.5 million worth of stock at the end of September. It was followed by Millennium Management with a $15.2 million position. Other investors bullish on the company included D E Shaw, Arrowstreet Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Mangrove Partners allocated the biggest weight to Fly Leasing Ltd (NYSE:FLY), around 3.21% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to FLY.

Since Fly Leasing Ltd (NYSE:FLY) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedge funds who were dropping their full holdings by the end of the third quarter. At the top of the heap, Noam Gottesman’s GLG Partners dumped the biggest investment of all the hedgies watched by Insider Monkey, comprising about $1.4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fly Leasing Ltd (NYSE:FLY) but similarly valued. We will take a look at B. Riley Financial, Inc. (NASDAQ:RILY), Luther Burbank Corporation (NASDAQ:LBC), Voyager Therapeutics, Inc. (NASDAQ:VYGR), and NexTier Oilfield Solutions Inc. (NYSE:FRAC). This group of stocks’ market valuations are closest to FLY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RILY 14 118890 4
LBC 7 10312 0
VYGR 16 107789 -2
FRAC 23 346467 2
Average 15 145865 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $70 million in FLY’s case. NexTier Oilfield Solutions Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Luther Burbank Corporation (NASDAQ:LBC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Fly Leasing Ltd (NYSE:FLY) is even less popular than LBC. Hedge funds dodged a bullet by taking a bearish stance towards FLY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FLY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FLY investors were disappointed as the stock returned -4.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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

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