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Ultrapar Participacoes SA (UGP): Hedge Funds In Wait-and-See Mode

In this article you are going to find out whether hedge funds think Ultrapar Participacoes SA (NYSE:UGP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Ultrapar Participacoes SA (NYSE:UGP) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Braskem SA (NYSE:BAK), NuVasive, Inc. (NASDAQ:NUVA), and VEON Ltd. (NASDAQ:VEON) to gather more data points. Our calculations also showed that UGP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the new hedge fund action surrounding Ultrapar Participacoes SA (NYSE:UGP).

How have hedgies been trading Ultrapar Participacoes SA (NYSE:UGP)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in UGP a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Ultrapar Participacoes SA (NYSE:UGP), which was worth $24.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $0.9 million worth of shares. AQR Capital Management, Citadel Investment Group, and Engineers Gate Manager 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 0.02% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.002 percent of its 13F equity portfolio to UGP.

Due to the fact that Ultrapar Participacoes SA (NYSE:UGP) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies who sold off their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $3.3 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund cut about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ultrapar Participacoes SA (NYSE:UGP) but similarly valued. These stocks are Braskem SA (NYSE:BAK), NuVasive, Inc. (NASDAQ:NUVA), VEON Ltd. (NASDAQ:VEON), and ANGI Homeservices Inc (NASDAQ:ANGI). All of these stocks’ market caps resemble UGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAK 6 23630 1
NUVA 24 206412 -2
VEON 8 18862 -3
ANGI 27 231718 4
Average 16.25 120156 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $26 million in UGP’s case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ultrapar Participacoes SA (NYSE:UGP) is even less popular than BAK. Hedge funds clearly dropped the ball on UGP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on UGP as the stock returned 30.9% so far in the second quarter and outperformed the market by an even larger margin.

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