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Were Hedge Funds Right About Spirit AeroSystems Holdings (SPR)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Spirit AeroSystems Holdings, Inc. (NYSE:SPR) going to take off soon? The smart money is buying. The number of long hedge fund bets went up by 9 in recent months. Our calculations also showed that SPR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jeremy Mindich - Scopia Capital

Jeremy Mindich of Scopia Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the new hedge fund action surrounding Spirit AeroSystems Holdings, Inc. (NYSE:SPR).

What does smart money think about Spirit AeroSystems Holdings, Inc. (NYSE:SPR)?

At Q4’s end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was held by AQR Capital Management, which reported holding $347.4 million worth of stock at the end of September. It was followed by OZ Management with a $330.2 million position. Other investors bullish on the company included Darsana Capital Partners, Scopia Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to Spirit AeroSystems Holdings, Inc. (NYSE:SPR), around 15.53% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, earmarking 11.18 percent of its 13F equity portfolio to SPR.

Consequently, key money managers have jumped into Spirit AeroSystems Holdings, Inc. (NYSE:SPR) headfirst. Owl Creek Asset Management, managed by Jeffrey Altman, created the largest position in Spirit AeroSystems Holdings, Inc. (NYSE:SPR). Owl Creek Asset Management had $18.6 million invested in the company at the end of the quarter. Avi Fruchter’s Anavon Capital also made a $3.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Charles Davidson and Joseph Jacobs’s Wexford Capital, Michael Gelband’s ExodusPoint Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s check out hedge fund activity in other stocks similar to Spirit AeroSystems Holdings, Inc. (NYSE:SPR). These stocks are The Stars Group Inc. (NASDAQ:TSG), Ingersoll Rand Inc. (NYSE:GDI), GCI Liberty, Inc. (NASDAQ:GLIBA), and MongoDB, Inc. (NASDAQ:MDB). This group of stocks’ market valuations are similar to SPR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSG 45 1366436 11
GDI 22 232648 3
GLIBA 47 2304829 10
MDB 32 778851 1
Average 36.5 1170691 6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1171 million. That figure was $1875 million in SPR’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Ingersoll Rand Inc. (NYSE:GDI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Spirit AeroSystems Holdings, Inc. (NYSE:SPR) 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately SPR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPR were disappointed as the stock returned -71.9% during the four months of 2020 (through May 1st) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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