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Did Hedge Funds Drop The Ball On LATAM Airlines Group S.A. (LTM) ?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of LATAM Airlines Group S.A. (NYSE:LTM).

Is LATAM Airlines Group S.A. (NYSE:LTM) ready to rally soon? Hedge funds are getting less optimistic. The number of bullish hedge fund bets retreated by 3 recently. Our calculations also showed that LTM isn’t among the 30 most popular stocks among hedge funds. LTM was in 5 hedge funds’ portfolios at the end of the second quarter of 2019. There were 8 hedge funds in our database with LTM holdings at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 analyze the new hedge fund action encompassing LATAM Airlines Group S.A. (NYSE:LTM).

What have hedge funds been doing with LATAM Airlines Group S.A. (NYSE:LTM)?

At Q2’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in LTM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with LTM Positions

More specifically, Renaissance Technologies was the largest shareholder of LATAM Airlines Group S.A. (NYSE:LTM), with a stake worth $13.5 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $2.6 million. Crestwood Capital Management, Millennium Management, and ExodusPoint Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as LATAM Airlines Group S.A. (NYSE:LTM) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of money managers that elected to cut their entire stakes last quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the biggest stake of the 750 funds watched by Insider Monkey, valued at an estimated $1.3 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund sold off about $0.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LATAM Airlines Group S.A. (NYSE:LTM) but similarly valued. These stocks are Quanta Services Inc (NYSE:PWR), Park Hotels & Resorts Inc. (NYSE:PK), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), and Ingredion Incorporated (NYSE:INGR). This group of stocks’ market values match LTM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PWR 29 539950 5
PK 25 374204 11
GGAL 12 109602 -5
INGR 21 255889 3
Average 21.75 319911 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $18 million in LTM’s case. Quanta Services Inc (NYSE:PWR) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks LATAM Airlines Group S.A. (NYSE:LTM) is even less popular than GGAL. Hedge funds clearly dropped the ball on LTM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks (view the video below) 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 LTM as the stock returned 18.5% during the third quarter and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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