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Hedge Funds Are Selling Liberty Latin America Ltd. (LILA)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Liberty Latin America Ltd. (NASDAQ:LILA)? The smart money sentiment can provide an answer to this question.

Liberty Latin America Ltd. (NASDAQ:LILA) investors should pay attention to a decrease in support from the world’s most elite money managers recently. LILA was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 14 hedge funds in our database with LILA holdings at the end of the previous quarter. Our calculations also showed that LILA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

hedge funds vs. mutual funds

Warren Buffett of Berkshire Hathaway

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the recent hedge fund action surrounding Liberty Latin America Ltd. (NASDAQ:LILA).

What have hedge funds been doing with Liberty Latin America Ltd. (NASDAQ:LILA)?

Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in LILA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ashe Capital was the largest shareholder of Liberty Latin America Ltd. (NASDAQ:LILA), with a stake worth $80.8 million reported as of the end of September. Trailing Ashe Capital was Berkshire Hathaway, which amassed a stake valued at $52.4 million. Bill & Melinda Gates Foundation Trust, Two Creeks Capital Management, and Renaissance Technologies 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 Ashe Capital allocated the biggest weight to Liberty Latin America Ltd. (NASDAQ:LILA), around 6.16% of its 13F portfolio. Two Creeks Capital Management is also relatively very bullish on the stock, designating 0.43 percent of its 13F equity portfolio to LILA.

Due to the fact that Liberty Latin America Ltd. (NASDAQ:LILA) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes heading into Q4. Intriguingly, Israel Englander’s Millennium Management dropped the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $5.7 million in stock, and John Thiessen’s Vertex One Asset Management was right behind this move, as the fund cut about $1.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Liberty Latin America Ltd. (NASDAQ:LILA) but similarly valued. We will take a look at Compania Cervecerias Unidas S.A. (NYSE:CCU), Regal Beloit Corporation (NYSE:RBC), Pebblebrook Hotel Trust (NYSE:PEB), and Semtech Corporation (NASDAQ:SMTC). This group of stocks’ market valuations resemble LILA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCU 8 40468 -1
RBC 24 281179 4
PEB 22 215639 9
SMTC 12 199266 -5
Average 16.5 184138 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $171 million in LILA’s case. Regal Beloit Corporation (NYSE:RBC) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 8 bullish hedge fund positions. Liberty Latin America Ltd. (NASDAQ:LILA) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately LILA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LILA investors were disappointed as the stock returned -46.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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