The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Azul S.A. (NYSE:AZUL) from the perspective of those elite funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a glance at the new hedge fund action regarding Azul S.A. (NYSE:AZUL).
How have hedgies been trading Azul S.A. (NYSE:AZUL)?
Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -48% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AZUL over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Howard Marks’s Oaktree Capital Management has the number one position in Azul S.A. (NYSE:AZUL), worth close to $33.3 million, comprising 0.4% of its total 13F portfolio. The second largest stake is held by Mark Moore of ThornTree Capital Partners, with a $15.4 million position; 4.5% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions encompass Jon Bauer’s Contrarian Capital, Ken Griffin’s Citadel Investment Group and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.
Since Azul S.A. (NYSE:AZUL) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers who sold off their positions entirely in the third quarter. Intriguingly, Robert Polak’s Anchor Bolt Capital sold off the biggest position of the 700 funds followed by Insider Monkey, worth an estimated $12.2 million in stock. David Rodriguez-Fraile’s fund, BlueMar Capital Management, also dropped its stock, about $3.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 10 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Azul S.A. (NYSE:AZUL). These stocks are Heartland Financial USA Inc (NASDAQ:HTLF), NetGear, Inc. (NASDAQ:NTGR), Uxin Limited (NASDAQ:UXIN), and Wingstop Inc (NASDAQ:WING). This group of stocks’ market values are closest to AZUL’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $89 million in AZUL’s case. Wingstop Inc (NASDAQ:WING) is the most popular stock in this table. On the other hand Uxin Limited (NASDAQ:UXIN) is the least popular one with only 5 bullish hedge fund positions. Azul S.A. (NYSE:AZUL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WING might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.