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Itau Unibanco Holding SA (ITUB): Hedge Funds Are Nibbling

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Itau Unibanco Holding SA (NYSE:ITUB) and determine whether the smart money was really smart about this stock.

Is Itau Unibanco Holding SA (NYSE:ITUB) a bargain? Money managers were getting more bullish. The number of long hedge fund bets increased by 4 in recent months. Itau Unibanco Holding SA (NYSE:ITUB) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that ITUB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with ITUB positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a peek at the latest hedge fund action encompassing Itau Unibanco Holding SA (NYSE:ITUB).

What does smart money think about Itau Unibanco Holding SA (NYSE:ITUB)?

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ITUB over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Itau Unibanco Holding SA (NYSE:ITUB), with a stake worth $133.1 million reported as of the end of September. Trailing Fisher Asset Management was Oaktree Capital Management, which amassed a stake valued at $89.2 million. Orbis Investment Management, Arrowstreet Capital, and D E Shaw 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 1.98% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, dishing out 0.41 percent of its 13F equity portfolio to ITUB.

Now, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Itau Unibanco Holding SA (NYSE:ITUB). Arrowstreet Capital had $35.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $8.5 million investment in the stock during the quarter. The following funds were also among the new ITUB investors: Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and Matthew Tewksbury’s Stevens Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Itau Unibanco Holding SA (NYSE:ITUB). These stocks are Biogen Inc. (NASDAQ:BIIB), The Charles Schwab Corporation (NYSE:SCHW), General Dynamics Corporation (NYSE:GD), Vodafone Group Plc (NASDAQ:VOD), National Grid plc (NYSE:NGG), Ferrari N.V. (NYSE:RACE), and Koninklijke Philips NV (NYSE:PHG). This group of stocks’ market values are similar to ITUB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIIB 63 3268402 -7
SCHW 71 3295929 9
GD 42 5491682 3
VOD 16 726090 2
NGG 2 430749 -4
RACE 25 1361698 -4
PHG 6 83694 -5
Average 32.1 2094035 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.1 hedge funds with bullish positions and the average amount invested in these stocks was $2094 million. That figure was $352 million in ITUB’s case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 2 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 34. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ITUB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ITUB investors were disappointed as the stock returned -14.8% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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