Did Hedge Funds Make The Right Call On Liberty Latin America Ltd. (LILAK)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Liberty Latin America Ltd. (NASDAQ:LILAK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Liberty Latin America Ltd. (NASDAQ:LILAK) investors should pay attention to an increase in hedge fund interest in recent months. LILAK was in 25 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with LILAK positions at the end of the previous quarter. Our calculations also showed that LILAK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to view the new hedge fund action encompassing Liberty Latin America Ltd. (NASDAQ:LILAK).

What does smart money think about Liberty Latin America Ltd. (NASDAQ:LILAK)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LILAK over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, William Crowley, William Harker, and Stephen Blass’s Ashe Capital has the most valuable position in Liberty Latin America Ltd. (NASDAQ:LILAK), worth close to $87.2 million, amounting to 8.1% of its total 13F portfolio. Coming in second is Fine Capital Partners, managed by Debra Fine, which holds a $46.4 million position; the fund has 28.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish contain Ryan Pedlow’s Two Creeks Capital Management, Wallace Weitz’s Wallace R. Weitz & Co. and Richard Merage’s MIG Capital. In terms of the portfolio weights assigned to each position Fine Capital Partners allocated the biggest weight to Liberty Latin America Ltd. (NASDAQ:LILAK), around 28.3% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, designating 8.07 percent of its 13F equity portfolio to LILAK.

As aggregate interest increased, some big names were leading the bulls’ herd. Moon Capital, managed by John W. Moon, initiated the largest position in Liberty Latin America Ltd. (NASDAQ:LILAK). Moon Capital had $4.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $3.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Greg Eisner’s Engineers Gate Manager, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Liberty Latin America Ltd. (NASDAQ:LILAK) but similarly valued. We will take a look at Brandywine Realty Trust (NYSE:BDN), Advanced Energy Industries, Inc. (NASDAQ:AEIS), Casella Waste Systems Inc. (NASDAQ:CWST), and Dicks Sporting Goods Inc (NYSE:DKS). This group of stocks’ market valuations are similar to LILAK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BDN 11 24156 -7
AEIS 14 58741 -6
CWST 16 147998 6
DKS 27 180902 1
Average 17 102949 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $257 million in LILAK’s case. Dicks Sporting Goods Inc (NYSE:DKS) is the most popular stock in this table. On the other hand Brandywine Realty Trust (NYSE:BDN) is the least popular one with only 11 bullish hedge fund positions. Liberty Latin America Ltd. (NASDAQ:LILAK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately LILAK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LILAK were disappointed as the stock returned -8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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