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Here is What Hedge Funds Think About Itau Unibanco Holding SA (ITUB)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Itau Unibanco Holding SA (NYSE:ITUB).

Hedge fund interest in Itau Unibanco Holding SA (NYSE:ITUB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ITUB to other stocks including Becton, Dickinson and Company (NYSE:BDX), The TJX Companies, Inc. (NYSE:TJX), and Eni SpA (NYSE:E) to get a better sense of its popularity.

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 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.

Richard Driehaus

We’re going to go over the latest hedge fund action regarding Itau Unibanco Holding SA (NYSE:ITUB).

What have hedge funds been doing with Itau Unibanco Holding SA (NYSE:ITUB)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in ITUB at the beginning of this year. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

ITUB_dec2018

Among these funds, Fisher Asset Management held the most valuable stake in Itau Unibanco Holding SA (NYSE:ITUB), which was worth $291.8 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $108.4 million worth of shares. Moreover, Oaktree Capital Management, Driehaus Capital, and GLG Partners were also bullish on Itau Unibanco Holding SA (NYSE:ITUB), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Itau Unibanco Holding SA (NYSE:ITUB) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers who were dropping their full holdings last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, comprising close to $92.4 million in stock. Jim Simons’s fund, Renaissance Technologies, also dropped its stock, about $54.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Itau Unibanco Holding SA (NYSE:ITUB) but similarly valued. These stocks are Becton, Dickinson and Company (NYSE:BDX), The TJX Companies, Inc. (NYSE:TJX), Eni SpA (NYSE:E), and Westpac Banking Corporation (NYSE:WBK). All of these stocks’ market caps match ITUB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BDX 41 1244633 7
TJX 49 3254193 10
E 7 72126 0
WBK 6 41825 -1
Average 25.75 1153194 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.15 billion. That figure was $669 million in ITUB’s case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 6 bullish hedge fund positions. Itau Unibanco Holding SA (NYSE:ITUB) 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 TJX might be a better candidate to consider a long position.

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

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