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What do the top hedge fund gurus like in the airline Industry? This article, the fourth in a series, identifies through meticulous research of the latest available institutional 13-F filings the gurus who are most invested in airline equities, and the airline companies which they prefer to hold in their hedge fund portfolios. The first three articles in the series identified Gurus That Are Overweight in the Solar Sector, Utilities Sector and in China Stocks, and the stocks within those sectors that they hold in their portfolios (for those familiar with the series, skip over to the fifth paragraph).
A guru is defined as someone who is regarded as having great knowledge, wisdom and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus including long-term performance, low portfolio volatility and an elite reputation in the investment community.
Many of us are familiar with leading investors and hedge fund managers such as Warren Buffett, George Soros, Carl Icahn and Julian Robertson, but the hedge fund community alone includes over 9,000 funds; add in mutual funds, ETFs and other investment entities and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than 1%, or between 100 to 200 fund managers, are commonly believed by the larger investment community to have earned the distinction of being called gurus.
The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth deploying large sums of capital from their funds on a regular basis. They have a long-term track record of success, and while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.
The total capitalization of the U.S. equity markets is somewhere in the $15 trillion range, and the total market capitalization of leading airline stocks (including air freight providers like UPS (NYSE:UPS)) is approximately $150 billion or 1% of the overall market. The table lists five hedge fund gurus whose funds have invested over four times that or at least 4% in the airline sector. The airline stocks which these gurus, who are over-invested in the airline sector by a factor of at least four, consider as their best picks by virtue of having it in their portfolio include the following:
  • Irish passenger airline Ryanair Holdings Plc ADR (NASDAQ:RYAAY).
  • Airline majors including Delta Air Lines (NYSE:DAL), US Airways Group (LCC), and United Continental Holdings (NYSE:UAL).
  • Regional Airlines including JetBlue Airways Corp (NASDAQ:JBLU) and Southwest Airlines Co (NYSE:LUV).
  • International Air freight delivery provider United Parcel Service (UPS).
Table
Fund and Guru
Type of Fund
Assets Under Management
Percent Portfolio in Chinese Stocks
Major Chinese company positions in Portfolio
Brave Warrior Capital, Inc. (Glenn Greenberg)
Hedge Fund
$ 1.2 billion
10.0%
RYAAY
Manning & Napier Advisors Inc.
Asset Manager including Mutual Funds
$ 25 billion
5.4%
RYAAY, UPS, LUV, LCC
Pabrai Mohnish
Hedge Fund – Long/Short
$ 340 million
5.1%
Air Transport Services (NASDAQ:ATSG)
Donald Smith & Co., Inc. (Donald G. Smith)
Hedge Fund – Deep Value
$ 3.2 billion
4.4%
JBLU, LCC
Soros Fund Management LLC (George Soros)
Hedge Fund – Global Macro
$ 5.1 billion
4%
DAL, UAL and minor positions in ATSG, UPS, LCC, HA, PNCL and Atlas Air (NASDAQ:AAWW)
Brave Warrior Capital, a hedge fund co-founded in 1984 by gurus Glenn Greenberg and John Shapiro, generally maintains a highly concentrated portfolio which ties with his philosophy that the more companies you own the less you know about each, and the less you know about a business the more you are likely to make a mistake out of fear or greed. Currently his portfolio consists of 11 companies, with 10% of the portfolio invested in RYAAY.
Manning & Napier, founded by William Manning in 1970, manages $25 billion in assets, including $8 billion in international portfolios. They are a bottom-up, fundamentals-based stock picker. They offer clients a variety of investment alternatives including separately managed advisory accounts, proprietary mutual funds, custody and trust services, and retirement plans.
Mr. Pabrai runs a $340 million hedge fund. He is a value investor, investing primarily in out-of-favor smaller companies, with a market capitalization of less than half a billion dollars. His portfolio is generally concentrated with less than 10-20 companies.
With total assets under management (AUM) of $3.2 billion, hedge fund Donald Smith & Co., Inc., headed by Guru Donald G. Smith, was founded 30 years ago and invests in out-of-favor companies selling in the bottom decile of price-to-tangible book value ratios, and that have significant earnings potential over the next 2-4 years.
Mr. Soros is a Hungarian-born renowned U.S. investor, most famous for his spearheading the Quantum Fund that is believed to have "broken" the Bank of England in 1992, forcing them to devalue the pound. A mere $1,000 invested in 1969 when Soros established the Quantum Fund would have been worth $4 million by the year 2000, achieving a cumulative return of 32%.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Top Airline Picks by Hedge Fund Gurus