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Were Hedge Funds Right About Ditching Air Lease Corp (AL)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Air Lease Corp (NYSE:AL) based on that data and determine whether they were really smart about the stock.

Air Lease Corp (NYSE:AL) has seen a decrease in hedge fund sentiment in recent months. AL was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 23 hedge funds in our database with AL positions at the end of the previous quarter. Our calculations also showed that AL 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s review the latest hedge fund action encompassing Air Lease Corp (NYSE:AL).

How are hedge funds trading Air Lease Corp (NYSE:AL)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the fourth quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in AL a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is AL A Good Stock To Buy?

The largest stake in Air Lease Corp (NYSE:AL) was held by Windacre Partnership, which reported holding $206 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $73.8 million position. Other investors bullish on the company included Royce & Associates, Basswood Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Air Lease Corp (NYSE:AL), around 9.19% of its 13F portfolio. Tegean Capital Management is also relatively very bullish on the stock, setting aside 6.83 percent of its 13F equity portfolio to AL.

Judging by the fact that Air Lease Corp (NYSE:AL) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there were a few hedge funds who sold off their positions entirely last quarter. Intriguingly, Bernard Selz’s Selz Capital cut the biggest investment of the 750 funds followed by Insider Monkey, worth close to $48 million in stock, and John Osterweis’s Osterweis Capital Management was right behind this move, as the fund dropped about $25.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Air Lease Corp (NYSE:AL). We will take a look at Blackstone Mortgage Trust Inc (NYSE:BXMT), United States Cellular Corporation (NYSE:USM), AAON, Inc. (NASDAQ:AAON), and Spirit AeroSystems Holdings, Inc. (NYSE:SPR). All of these stocks’ market caps are closest to AL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BXMT 19 56818 4
USM 12 91991 -9
AAON 11 24193 4
SPR 38 745596 -10
Average 20 229650 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $379 million in AL’s case. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 11 bullish hedge fund positions. Air Lease Corp (NYSE:AL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately AL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AL investors were disappointed as the stock returned 18% since Q1 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.