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Hedge Funds Are Selling LATAM Airlines Group S.A. (LTM)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding LATAM Airlines Group S.A. (NYSE:LTM) and determine whether hedge funds had an edge regarding this stock.

Is LATAM Airlines Group S.A. (NYSE:LTM) worth your attention right now? Prominent investors were getting less bullish. The number of long hedge fund positions dropped by 4 lately. Our calculations also showed that LTM 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). LTM was in 10 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with LTM holdings at the end of the previous quarter.

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

In the financial world there are a lot of metrics stock market investors have at their disposal to grade stocks. Two of the less utilized metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top investment managers can outclass the S&P 500 by a significant margin (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital 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. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing LATAM Airlines Group S.A. (NYSE:LTM).

How have hedgies been trading LATAM Airlines Group S.A. (NYSE:LTM)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LTM over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in LATAM Airlines Group S.A. (NYSE:LTM), which was worth $2.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $1.5 million worth of shares. AQR Capital Management, Renaissance Technologies, and Crestwood Capital Management 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 Crestwood Capital Management allocated the biggest weight to LATAM Airlines Group S.A. (NYSE:LTM), around 0.46% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to LTM.

Due to the fact that LATAM Airlines Group S.A. (NYSE:LTM) has faced a decline in interest from the smart money, we can see that there was a specific group of hedge funds who were dropping their full holdings in the first quarter. Interestingly, D. E. Shaw’s D E Shaw sold off the largest position of the 750 funds watched by Insider Monkey, totaling an estimated $1.2 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also said goodbye to its stock, about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as LATAM Airlines Group S.A. (NYSE:LTM) but similarly valued. These stocks are Capri Holdings Limited (NYSE:CPRI), Boyd Gaming Corporation (NYSE:BYD), Fox Factory Holding Corp (NASDAQ:FOXF), and Bottomline Technologies (de), Inc. (NASDAQ:EPAY). This group of stocks’ market values resemble LTM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPRI 29 280046 -11
BYD 26 179093 -4
FOXF 10 15115 -3
EPAY 18 73371 1
Average 20.75 136906 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $8 million in LTM’s case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Fox Factory Holding Corp (NASDAQ:FOXF) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks LATAM Airlines Group S.A. (NYSE:LTM) is even less popular than FOXF. Hedge funds dodged a bullet by taking a bearish stance towards LTM. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 15.5 percentage points. Unfortunately LTM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LTM investors were disappointed as the stock returned -47.2% 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 so far in 2020.

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