We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Ultrapar Participacoes SA (NYSE:UGP).
Is Ultrapar Participacoes SA (NYSE:UGP) ready to rally soon? Money managers were turning bullish. The number of long hedge fund bets inched up by 1 in recent months. Ultrapar Participacoes SA (NYSE:UGP) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. Our calculations also showed that UGP isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a glance at the key hedge fund action surrounding Ultrapar Participacoes SA (NYSE:UGP).
How are hedge funds trading Ultrapar Participacoes SA (NYSE:UGP)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in UGP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Ultrapar Participacoes SA (NYSE:UGP), with a stake worth $27 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.4 million. Millennium Management, AQR Capital Management, and Citadel Investment Group 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 Renaissance Technologies allocated the biggest weight to Ultrapar Participacoes SA (NYSE:UGP), around 0.03% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to UGP.
Consequently, key money managers were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, assembled the largest position in Ultrapar Participacoes SA (NYSE:UGP). ExodusPoint Capital had $0.1 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.1 million position during the quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ultrapar Participacoes SA (NYSE:UGP) but similarly valued. We will take a look at Shell Midstream Partners LP (NYSE:SHLX), Exponent, Inc. (NASDAQ:EXPO), Emcor Group Inc (NYSE:EME), FibroGen Inc (NASDAQ:FGEN), Axis Capital Holdings Limited (NYSE:AXS), Colfax Corporation (NYSE:CFX), and Novanta Inc. (NASDAQ:NOVT). This group of stocks’ market values are similar to UGP’s market value.
|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 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $33 million in UGP’s case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 bullish hedge fund positions. Ultrapar Participacoes SA (NYSE:UGP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UGP is 28.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on UGP as the stock returned 15.8% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.