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Hedge Funds Are Selling Afya Limited (AFYA)

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Afya Limited (NASDAQ:AFYA).

Is Afya Limited (NASDAQ:AFYA) undervalued? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that AFYA 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). AFYA was in 8 hedge funds’ portfolios at the end of March. There were 9 hedge funds in our database with AFYA holdings at the end of the previous quarter.

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.

Richard Driehaus of Driehaus Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we’re going to take a peek at the fresh hedge fund action surrounding Afya Limited (NASDAQ:AFYA).

How are hedge funds trading Afya Limited (NASDAQ:AFYA)?

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AFYA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AFYA A Good Stock To Buy?

More specifically, Oaktree Capital Management was the largest shareholder of Afya Limited (NASDAQ:AFYA), with a stake worth $27.4 million reported as of the end of September. Trailing Oaktree Capital Management was Driehaus Capital, which amassed a stake valued at $10.2 million. Key Square Capital Management, Hound Partners, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Key Square Capital Management allocated the biggest weight to Afya Limited (NASDAQ:AFYA), around 1.28% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to AFYA.

Because Afya Limited (NASDAQ:AFYA) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that slashed their full holdings in the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1.4 million in stock. James Dondero’s fund, Highland Capital Management, also dropped its stock, about $1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Afya Limited (NASDAQ:AFYA) but similarly valued. We will take a look at TeleTech Holdings, Inc. (NASDAQ:TTEC), Chimera Investment Corporation (NYSE:CIM), Summit Materials Inc (NYSE:SUM), and Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA). This group of stocks’ market valuations match AFYA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTEC 15 36684 -11
CIM 17 49036 3
SUM 27 248345 -8
IBA 3 28755 0
Average 15.5 90705 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $55 million in AFYA’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Afya Limited (NASDAQ:AFYA) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on AFYA, though not to the same extent, as the stock returned 24.7% during the second quarter and outperformed the market.

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