Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to take a peek at the fresh hedge fund action surrounding Ultrapar Participacoes SA (NYSE:UGP).
How have hedgies been trading Ultrapar Participacoes SA (NYSE:UGP)?
At Q2’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -42% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UGP over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Ultrapar Participacoes SA (NYSE:UGP), which was worth $42.8 million at the end of the second quarter. On the second spot was Millennium Management which amassed $9.8 million worth of shares. Moreover, AQR Capital Management, Citadel Investment Group, and ExodusPoint Capital were also bullish on Ultrapar Participacoes SA (NYSE:UGP), allocating a large percentage of their portfolios to this stock.
Because Ultrapar Participacoes SA (NYSE:UGP) has experienced a decline in interest from the smart money, it’s safe to say that there were a few hedge funds that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management dumped the largest stake of all the hedgies watched by Insider Monkey, totaling about $1 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Ultrapar Participacoes SA (NYSE:UGP). We will take a look at argenx SE (NASDAQ:ARGX), Avalara, Inc. (NYSE:AVLR), Companhia Energetica de Minas Gerais (NYSE:CIG), and Cousins Properties Incorporated (NYSE:CUZ). This group of stocks’ market caps are closest to UGP’s market cap.
|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 23 hedge funds with bullish positions and the average amount invested in these stocks was $557 million. That figure was $54 million in UGP’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Ultrapar Participacoes SA (NYSE:UGP) is even less popular than CIG. Hedge funds dodged a bullet by taking a bearish stance towards UGP. 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 UGP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UGP investors were disappointed as the stock returned -13.7% 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.