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AQR Capital and Renaissance Technologies Raise Stakes in LUV

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Oct. 2 2015, Published 7:41 a.m. ET

Top hedge funds increase exposure to Southwest Airlines

In the previous part of this series, we saw how institutional investors played Southwest Airlines (LUV) in 2Q15. Now let’s move on to the trades executed by key hedge funds in Southwest Airlines over the same period.

Investment decisions made by hedge funds can be useful for investors who are trying to piggyback. Most of the hedge funds that had significant exposure to Southwest Airlines increased their stakes in the company despite a rough second quarter in which shares lost approximately 25% in value.

Among hedge funds that made significant buys in 2Q15 was value investor Cliff Asness’s AQR Capital Management. It increased its stake in LUV by ~4 million shares to 9.7 million shares. The position is worth $320.1 million and represents 0.63% of its $50.4 billion portfolio.

PAR Capital Management, which has a 30% exposure to airlines, also upped its stake in LUV by purchasing 1.5 million shares. In dollar value, the position is worth $137 million and accounts for 3.1% of its portfolio.

Reniassance Technologies, which has held a stake in LUV since 2010, also increased its stake with the purchase of 2.1 million shares. The position is estimated to be worth $154 million.

Among hedge funds with sizable stakes, John Armitage’s long-short equity hedge fund Egerton Capital was the only one to reduce its stake. It still holds 13.9 million shares in LUV and has a portfolio exposure of 5.84%.

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Hedge funds betting on airline operators such as Delta Air Lines (DAL), Southwest Airlines (LUV), United Continental Holdings (UAL), and American Airlines Group (AAL) are expecting low fuel prices combined with effective management of airline capacity to likely shore up profit margins of US airlines on the road ahead.

ETFs with sizable investments in airlines

Investors seeking to gain exposure to airlines such as Delta Air Lines (DAL), Alaska Air Group (ALK), JetBlue Airways (JBLU), Allegiant Travel (ALGT), Southwest Airlines (LUV), SkyWest (SKYW), and United Continental Holdings (UAL) can consider pooled investment vehicles like the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN). IYT has 16.5% of its portfolio in airlines, while XTN has 25%.

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