Hedge fund Marshall Wace has taken a large stake in British Airways owner IAG, one of the first big investment groups to bet on a sector battered by the coronavirus pandemic.
The London-based group, one of the world’s largest hedge funds with about $48bn in assets, disclosed a 3 per cent holding on Wednesday. Marshall Wace and IAG declined to comment on the trade.
The bet is a sign the group believes there is value in UK stocks, said a person familiar with its thinking.
Hedge funds have been looking at sectors savaged by the coronavirus pandemic such as airlines in recent months as they hunt for bargains in the wake of plunging share prices.
IAG’s shares have tumbled 60 per cent to 98p since the end of February as the collapse in passenger numbers has forced it into survival mode, along with other airlines.
The company, which owns carriers including BA and Iberia, launched a discounted €2.75bn rights issue last month to cope with second quarter losses.
Some funds have profited from well-timed bets in the airlines and aerospace sectors. Dan Loeb’s Third Point made money from buying Boeing bonds this year.
Some hedge funds also built up short positions against IAG ahead of its rights issue, according to data from IHS Markit, which are likely to have proved profitable as the shares fell.
However, other funds have been burnt, creating wariness over betting on an industry that may take years to recover. Lansdowne Partners chalked up big losses in its main hedge fund this year in part due to airline bets.
Said Tazi, senior portfolio manager at Syz Private Banking, said airline stocks had fallen “probably for good reasons”.
He added: “Let’s remember that, even in normal times, most airlines have not performed well relative to the market.
“The economics of the industry are unappealing: tough competition, high capex, strong unions, and of course oil price volatility.”
Richard Marwood, a fund manager at Royal London Asset Management, said airlines had a “speculative appeal” as a bet on the long-term recovery from the pandemic.
But he has remained on the sidelines because he considers airlines volatile businesses, even at the best of times; it was also tricky to forecast how quickly the industry could recover.
On Monday, IAG installed new leadership at BA, its largest airline, replacing Alex Cruz with Aer Lingus boss Sean Doyle as it struggles to turn its business round.
Airlines have been slashing costs and raising capital for more than seven months, but are heading into the lean northern hemisphere winter in weak shape.
Industry body Iata warned this week that its forecasts for industry losses of more than $80bn this year were too conservative, given an expected recovery had not materialised, and it called for more government support.
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