It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same 11-month 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 isn't a waste of time to check out hedge fund sentiment before you invest in a stock like United Airlines Holdings Inc (NASDAQ:UAL).
Is United Airlines Holdings Inc (NASDAQ:UAL) a buy right now? The smart money is selling. The number of bullish hedge fund positions went down by 1 lately. Our calculations also showed that UAL isn't among the 30 most popular stocks among hedge funds. UAL was in 46 hedge funds' portfolios at the end of September. There were 47 hedge funds in our database with UAL positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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.
[caption id="attachment_792409" align="aligncenter" width="464"] Brad Gerstner of Altimeter Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the latest hedge fund action regarding United Airlines Holdings Inc (NASDAQ:UAL).
How are hedge funds trading United Airlines Holdings Inc (NASDAQ:UAL)?
At the end of the third quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in UAL a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of United Airlines Holdings Inc (NASDAQ:UAL), with a stake worth $1939.6 million reported as of the end of September. Trailing Berkshire Hathaway was PAR Capital Management, which amassed a stake valued at $1241.8 million. Altimeter 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 Cyrus Capital Partners allocated the biggest weight to United Airlines Holdings Inc (NASDAQ:UAL), around 26.09% of its portfolio. Altimeter Capital Management is also relatively very bullish on the stock, designating 25.49 percent of its 13F equity portfolio to UAL.
Seeing as United Airlines Holdings Inc (NASDAQ:UAL) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Gregg Moskowitz's Interval Partners dropped the largest stake of the 750 funds followed by Insider Monkey, valued at about $79.6 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dumped its stock, about $64.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as United Airlines Holdings Inc (NASDAQ:UAL) but similarly valued. We will take a look at Royal Caribbean Cruises Ltd. (NYSE:RCL), KKR & Co Inc. (NYSE:KKR), Synchrony Financial (NYSE:SYF), and Veeva Systems Inc (NYSE:VEEV). This group of stocks' market values are closest to UAL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCL,45,1672773,-1 KKR,41,3227093,5 SYF,43,2375436,-3 VEEV,33,1020379,-2 Average,40.5,2073920,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $2074 million. That figure was $7091 million in UAL's case. Royal Caribbean Cruises Ltd. (NYSE:RCL) is the most popular stock in this table. On the other hand Veeva Systems Inc (NYSE:VEEV) is the least popular one with only 33 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately UAL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UAL were disappointed as the stock returned 3.8% during the fourth quarter (through 11/22) 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.