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Were Hedge Funds Right About Dumping United Airlines Holdings Inc (UAL)?

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). 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 (NASDAQ:UAL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is United Airlines Holdings Inc (NASDAQ:UAL) a buy, sell, or hold? The best stock pickers were getting less optimistic. The number of long hedge fund bets were cut by 21 lately. Our calculations also showed that UAL 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.

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action surrounding United Airlines Holdings Inc (NASDAQ:UAL).

What have hedge funds been doing with United Airlines Holdings Inc (NASDAQ:UAL)?

At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -34% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in UAL over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in United Airlines Holdings Inc (NASDAQ:UAL), which was worth $699.1 million at the end of the third quarter. On the second spot was Altimeter Capital Management which amassed $340.5 million worth of shares. PAR Capital Management, Lansdowne Partners, and AQR Capital Management 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 (NASDAQ:UAL), around 10.55% of its 13F portfolio. Altimeter Capital Management is also relatively very bullish on the stock, dishing out 10.22 percent of its 13F equity portfolio to UAL.

Due to the fact that United Airlines Holdings Inc (NASDAQ:UAL) has faced declining sentiment from the smart money, it’s easy to see that there is a sect of money managers that elected to cut their full holdings last quarter. At the top of the heap, Leon Cooperman’s Omega Advisors said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $102.3 million in stock. Martin Taylor’s fund, Crake Asset Management, also sold off its stock, about $59.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 21 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as United Airlines Holdings Inc (NASDAQ:UAL) but similarly valued. These stocks are VICI Properties Inc. (NYSE:VICI), SVB Financial Group (NASDAQ:SIVB), Vistra Energy Corp. (NYSE:VST), and CenterPoint Energy, Inc. (NYSE:CNP). This group of stocks’ market values match UAL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VICI 36 921752 -1
SIVB 30 383904 -5
VST 39 1440172 -10
CNP 32 560894 2
Average 34.25 826681 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $827 million. That figure was $1909 million in UAL’s case. Vistra Energy Corp. (NYSE:VST) is the most popular stock in this table. On the other hand SVB Financial Group (NASDAQ:SIVB) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks United Airlines Holdings Inc (NASDAQ:UAL) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 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 9.7% during the second quarter 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.