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Did Hedge Funds Drop The Ball On Cosan Limited (CZZ)?

The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Cosan Limited (NYSE:CZZ) from the perspective of those elite funds.

Is Cosan Limited (NYSE:CZZ) undervalued? The smart money is reducing their bets on the stock. The number of long hedge fund bets went down by 1 lately. Our calculations also showed that CZZ isn’t among the 30 most popular stocks among hedge funds (view the video below). CZZ was in 15 hedge funds’ portfolios at the end of June. There were 16 hedge funds in our database with CZZ holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of metrics investors put to use to grade their holdings. A duo of the most innovative metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can outperform the S&P 500 by a significant amount (see the details here).

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the fresh hedge fund action regarding Cosan Limited (NYSE:CZZ).

What have hedge funds been doing with Cosan Limited (NYSE:CZZ)?

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in CZZ a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CZZ_oct2019

More specifically, Renaissance Technologies was the largest shareholder of Cosan Limited (NYSE:CZZ), with a stake worth $101.2 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $32.2 million. Millennium Management, Moon Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Because Cosan Limited (NYSE:CZZ) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that decided to sell off their positions entirely heading into Q3. Intriguingly, David Costen Haley’s HBK Investments said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $1.2 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cosan Limited (NYSE:CZZ) but similarly valued. These stocks are RLJ Lodging Trust (NYSE:RLJ), LiLAC Group (NASDAQ:LILAK), Brookfield Business Partners L.P. (NYSE:BBU), and Investors Bancorp, Inc. (NASDAQ:ISBC). This group of stocks’ market values match CZZ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RLJ 21 179723 0
LILAK 22 396567 4
BBU 5 12411 0
ISBC 23 569055 -1
Average 17.75 289439 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $174 million in CZZ’s case. Investors Bancorp, Inc. (NASDAQ:ISBC) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 5 bullish hedge fund positions. Cosan Limited (NYSE:CZZ) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CZZ as the stock returned 11.5% during the same time frame and outperformed the market by an even larger margin.

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

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