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Did Hedge Funds Make The Right Call On Popular Inc (BPOP) ?

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 Popular Inc (NASDAQ:BPOP) and determine whether hedge funds skillfully traded this stock.

Popular Inc (NASDAQ:BPOP) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. BPOP was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. There were 33 hedge funds in our database with BPOP holdings at the end of the previous quarter. Our calculations also showed that BPOP 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the latest hedge fund action surrounding Popular Inc (NASDAQ:BPOP).

How have hedgies been trading Popular Inc (NASDAQ:BPOP)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in BPOP 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 boosting their holdings considerably (or already accumulated large positions).

Is BPOP A Good Stock To Buy?

The largest stake in Popular Inc (NASDAQ:BPOP) was held by Polaris Capital Management, which reported holding $143.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $112.8 million position. Other investors bullish on the company included Alyeska Investment Group, Point72 Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position Raging Capital Management allocated the biggest weight to Popular Inc (NASDAQ:BPOP), around 9.6% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 8.67 percent of its 13F equity portfolio to BPOP.

Because Popular Inc (NASDAQ:BPOP) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that decided to sell off their full holdings last quarter. At the top of the heap, Jeffrey Hinkle’s Shoals Capital Management dropped the biggest stake of the 750 funds followed by Insider Monkey, worth close to $10 million in stock. Ray Dalio’s fund, Bridgewater Associates, also cut its stock, about $1.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Popular Inc (NASDAQ:BPOP) but similarly valued. These stocks are Global Blood Therapeutics Inc (NASDAQ:GBT), Hexcel Corporation (NYSE:HXL), Strategic Education Inc (NASDAQ:STRA), and Grocery Outlet Holding Corp. (NASDAQ:GO). This group of stocks’ market valuations match BPOP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GBT 23 431206 0
HXL 27 187145 -3
STRA 13 228871 0
GO 17 102998 3
Average 20 237555 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $469 million in BPOP’s case. Hexcel Corporation (NYSE:HXL) is the most popular stock in this table. On the other hand Strategic Education Inc (NASDAQ:STRA) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Popular Inc (NASDAQ:BPOP) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately BPOP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BPOP were disappointed as the stock returned 7.3% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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