Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Azul S.A. (NYSE:AZUL) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that AZUL isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the key hedge fund action regarding Azul S.A. (NYSE:AZUL).
How are hedge funds trading Azul S.A. (NYSE:AZUL)?
Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AZUL over the last 15 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Howard Marks’s Oaktree Capital Management has the most valuable position in Azul S.A. (NYSE:AZUL), worth close to $43.2 million, comprising 0.8% of its total 13F portfolio. The second largest stake is held by ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, which holds a $42.5 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Mark Moore’s ThornTree Capital Partners, Jon Bauer’s Contrarian Capital and Ken Griffin’s Citadel Investment Group.
As aggregate interest increased, key hedge funds were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the largest position in Azul S.A. (NYSE:AZUL). PEAK6 Capital Management had $1.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.2 million position during the quarter. The other funds with brand new AZUL positions are Robert B. Gillam’s McKinley Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Richard Driehaus’s Driehaus Capital.
Let’s now review hedge fund activity in other stocks similar to Azul S.A. (NYSE:AZUL). These stocks are Outfront Media Inc (NYSE:OUT), BankUnited, Inc. (NYSE:BKU), Sunstone Hotel Investors Inc (NYSE:SHO), and Tetra Tech, Inc. (NASDAQ:TTEK). All of these stocks’ market caps resemble AZUL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OUT | 25 | 334752 | 8 |
| BKU | 19 | 536410 | -2 |
| SHO | 20 | 156169 | 4 |
| TTEK | 23 | 58316 | -2 |
| Average | 21.75 | 271412 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $151 million in AZUL’s case. Outfront Media Inc (NYSE:OUT) is the most popular stock in this table. On the other hand BankUnited, Inc. (NYSE:BKU) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Azul S.A. (NYSE:AZUL) is even less popular than BKU. Hedge funds clearly dropped the ball on AZUL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on AZUL as the stock returned 20.4% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
