Did Hedge Funds Make The Right Call On PagSeguro Digital Ltd. (PAGS)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PagSeguro Digital Ltd. (NYSE:PAGS) and determine whether hedge funds skillfully traded this stock.

PagSeguro Digital Ltd. (NYSE:PAGS) has experienced a decrease in support from the world’s most elite money managers recently. Our calculations also showed that PAGS 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.

To the average investor there are numerous formulas stock market investors put to use to evaluate stocks. A couple of the less utilized formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outperform the S&P 500 by a very impressive amount (see the details here).

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a look at the new hedge fund action regarding PagSeguro Digital Ltd. (NYSE:PAGS).

How are hedge funds trading PagSeguro Digital Ltd. (NYSE:PAGS)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. On the other hand, there were a total of 30 hedge funds with a bullish position in PAGS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is PAGS A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Sylebra Capital Management, managed by Daniel Patrick Gibson, holds the biggest position in PagSeguro Digital Ltd. (NYSE:PAGS). Sylebra Capital Management has a $207.3 million position in the stock, comprising 8.5% of its 13F portfolio. The second largest stake is held by Samlyn Capital, led by Robert Pohly, holding a $84.2 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Robert Pitts’s Steadfast Capital Management, Greg Poole’s Echo Street Capital Management and Beeneet Kothari’s Tekne Capital Management. In terms of the portfolio weights assigned to each position Tekne Capital Management allocated the biggest weight to PagSeguro Digital Ltd. (NYSE:PAGS), around 13.32% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, setting aside 8.49 percent of its 13F equity portfolio to PAGS.

Since PagSeguro Digital Ltd. (NYSE:PAGS) has faced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of fund managers that elected to cut their entire stakes in the first quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw said goodbye to the largest position of the 750 funds monitored by Insider Monkey, comprising close to $41.1 million in stock. Carl Anderson’s fund, Marcho Partners, also cut its stock, about $16.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to PagSeguro Digital Ltd. (NYSE:PAGS). These stocks are Eastman Chemical Company (NYSE:EMN), American Financial Group (NYSE:AFG), Juniper Networks, Inc. (NYSE:JNPR), and LKQ Corporation (NASDAQ:LKQ). This group of stocks’ market values match PAGS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EMN 29 233593 -3
AFG 24 200932 -1
JNPR 34 540661 -3
LKQ 41 1132023 -11
Average 32 526802 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $527 million. That figure was $491 million in PAGS’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand American Financial Group (NYSE:AFG) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks PagSeguro Digital Ltd. (NYSE:PAGS) is even less popular than AFG. Hedge funds clearly dropped the ball on PAGS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on PAGS as the stock returned 96.1% since the end of March and outperformed the market by an even larger margin.

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