Hedge Funds Aren’t Crazy About Arcos Dorados Holding Inc (ARCO) Anymore

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Arcos Dorados Holding Inc (NYSE:ARCO) based on that data and determine whether they were really smart about the stock.

Arcos Dorados Holding Inc (NYSE:ARCO) has seen a decrease in activity from the world’s largest hedge funds in recent months. ARCO was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. There were 13 hedge funds in our database with ARCO holdings at the end of the previous quarter. Our calculations also showed that ARCO 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.

In the financial world there are plenty of signals stock traders can use to value stocks. A duo of the most useful signals are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can trounce the broader indices by a healthy amount (see the details here).

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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. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding Arcos Dorados Holding Inc (NYSE:ARCO).

Hedge fund activity in Arcos Dorados Holding Inc (NYSE:ARCO)

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ARCO over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Moerus Capital Management held the most valuable stake in Arcos Dorados Holding Inc (NYSE:ARCO), which was worth $18.1 million at the end of the third quarter. On the second spot was Bill & Melinda Gates Foundation Trust which amassed $10.2 million worth of shares. Renaissance Technologies, Two Sigma Advisors, 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 Moerus Capital Management allocated the biggest weight to Arcos Dorados Holding Inc (NYSE:ARCO), around 8.84% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to ARCO.

Due to the fact that Arcos Dorados Holding Inc (NYSE:ARCO) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that decided to sell off their full holdings heading into Q4. Intriguingly, Charles de Vaulx’s International Value Advisers dumped the largest position of the 750 funds followed by Insider Monkey, valued at an estimated $19.3 million in stock. Richard Driehaus’s fund, Driehaus Capital, also dropped its stock, about $9.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arcos Dorados Holding Inc (NYSE:ARCO) but similarly valued. We will take a look at Tronox Holdings Plc (NYSE:TROX), AudioCodes Ltd. (NASDAQ:AUDC), EverQuote, Inc. (NASDAQ:EVER), and Veritex Holdings Inc (NASDAQ:VBTX). All of these stocks’ market caps are closest to ARCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TROX 17 52262 -6
AUDC 10 37318 1
EVER 23 110730 4
VBTX 9 34975 -1
Average 14.75 58821 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $36 million in ARCO’s case. EverQuote, Inc. (NASDAQ:EVER) is the most popular stock in this table. On the other hand Veritex Holdings Inc (NASDAQ:VBTX) is the least popular one with only 9 bullish hedge fund positions. Arcos Dorados Holding Inc (NYSE:ARCO) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ARCO as the stock returned 27.5% during the second quarter and outperformed the market by an even larger margin.

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