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Were Hedge Funds Right About Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (VLRS)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we look at what those funds think of Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) based on that data.

Is Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) going to take off soon? The smart money is getting more bullish. The number of long hedge fund bets improved by 3 recently. Our calculations also showed that VLRS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TIGER MANAGEMENT

Julian Robertson of Tiger Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the new hedge fund action surrounding Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS).

How have hedgies been trading Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS)?

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in VLRS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) was held by Teewinot Capital Advisers, which reported holding $49.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $23.3 million position. Other investors bullish on the company included PAR Capital Management, Tiger Management, and Millennium Management. In terms of the portfolio weights assigned to each position Teewinot Capital Advisers allocated the biggest weight to Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), around 14.55% of its 13F portfolio. Tiger Management is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to VLRS.

As aggregate interest increased, key money managers have jumped into Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS). Arrowstreet Capital had $4.6 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Ronald Hua’s Qtron Investments and Noam Gottesman’s GLG Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS). These stocks are 3D Systems Corporation (NYSE:DDD), Hanger, Inc. (NYSE:HNGR), OneSpaWorld Holdings Limited (NASDAQ:OSW), and Five Point Holdings, LLC (NYSE:FPH). All of these stocks’ market caps match VLRS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DDD 19 48902 6
HNGR 15 82071 -1
OSW 11 114086 3
FPH 15 216718 1
Average 15 115444 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $115 million in VLRS’s case. 3D Systems Corporation (NYSE:DDD) is the most popular stock in this table. On the other hand OneSpaWorld Holdings Limited (NASDAQ:OSW) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) is even less popular than OSW. Hedge funds dodged a bullet by taking a bearish stance towards VLRS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately VLRS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); VLRS investors were disappointed as the stock returned -54.3% during the same time period 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 so far in 2020.
5 Most Popular Stocks Among Hedge Funds
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.

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