Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Corporacion America Airports SA (NYSE:CAAP).
Is Corporacion America Airports SA (NYSE:CAAP) a buy here? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets shrunk by 1 lately. Our calculations also showed that CAAP isn’t among the 30 most popular stocks among hedge funds (see the video below). CAAP was in 11 hedge funds’ portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with CAAP holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the key hedge fund action surrounding Corporacion America Airports SA (NYSE:CAAP).
Hedge fund activity in Corporacion America Airports SA (NYSE:CAAP)
At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CAAP over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Key Square Capital Management held the most valuable stake in Corporacion America Airports SA (NYSE:CAAP), which was worth $11.6 million at the end of the second quarter. On the second spot was Highland Capital Management which amassed $11.4 million worth of shares. Moreover, Makaira Partners, Newtyn Management, and Sloane Robinson Investment Management were also bullish on Corporacion America Airports SA (NYSE:CAAP), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: BlueCrest Capital Mgmt.. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CAAP as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Corporacion America Airports SA (NYSE:CAAP) but similarly valued. These stocks are Masonite International Corporation (NYSE:DOOR), Hawaiian Holdings, Inc. (NASDAQ:HA), Canadian Solar Inc. (NASDAQ:CSIQ), and Warrior Met Coal, Inc. (NYSE:HCC). This group of stocks’ market valuations resemble CAAP’s market valuation.
|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 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $52 million in CAAP’s case. Warrior Met Coal, Inc.(NYSE:HCC) is the most popular stock in this table. On the other hand Hawaiian Holdings, Inc. (NASDAQ:HA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Corporacion America Airports SA (NYSE:CAAP) is even less popular than HA. Hedge funds dodged a bullet by taking a bearish stance towards CAAP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CAAP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CAAP investors were disappointed as the stock returned -43.9% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.