Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Itau Unibanco Holding SA (NYSE:ITUB).
Is ITUB a good stock to buy now? Itau Unibanco Holding SA (NYSE:ITUB) shareholders have witnessed a decrease in hedge fund sentiment recently. Itau Unibanco Holding SA (NYSE:ITUB) was in 16 hedge funds’ portfolios at the end of September. The all time high for this statistic is 24. There were 20 hedge funds in our database with ITUB holdings at the end of June. Our calculations also showed that ITUB 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. Now let’s take a gander at the recent hedge fund action surrounding Itau Unibanco Holding SA (NYSE:ITUB).
Do Hedge Funds Think ITUB Is A Good Stock To Buy Now?
At the end of September, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in ITUB a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Itau Unibanco Holding SA (NYSE:ITUB), which was worth $102.9 million at the end of the third quarter. On the second spot was Oaktree Capital Management which amassed $78.9 million worth of shares. Arrowstreet Capital, D E Shaw, and Discovery Capital Management 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 Oaktree Capital Management allocated the biggest weight to Itau Unibanco Holding SA (NYSE:ITUB), around 1.72% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, designating 0.8 percent of its 13F equity portfolio to ITUB.
Judging by the fact that Itau Unibanco Holding SA (NYSE:ITUB) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers that slashed their positions entirely in the third quarter. Intriguingly, William B. Gray’s Orbis Investment Management sold off the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $37.6 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $5.4 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.
Let’s now review 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 Keurig Dr Pepper Inc. (NASDAQ:KDP), Snap Inc. (NYSE:SNAP), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Carvana Co. (NYSE:CVNA), General Mills, Inc. (NYSE:GIS), Electronic Arts Inc. (NASDAQ:EA), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). All of these stocks’ market caps resemble ITUB’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 42.3 hedge funds with bullish positions and the average amount invested in these stocks was $2035 million. That figure was $236 million in ITUB’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 8 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. Our overall hedge fund sentiment score for ITUB is 28.4. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ITUB as the stock returned 52.6% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.