Were Hedge Funds Right About XP Inc. (XP)?

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. Keeping this in mind, let’s take a look at whether XP Inc. (NASDAQ:XP) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is XP Inc. (NASDAQ:XP) a first-rate investment now? Investors who are in the know are becoming more confident. The number of long hedge fund positions rose by 28 lately. Our calculations also showed that XP 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). XP was in 28 hedge funds’ portfolios at the end of December. There were 0 hedge funds in our database with XP positions at the end of the previous quarter.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. Now let’s analyze the latest hedge fund action encompassing XP Inc. (NASDAQ:XP).

What have hedge funds been doing with XP Inc. (NASDAQ:XP)?

At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28 from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XP over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in XP Inc. (NASDAQ:XP) was held by Maverick Capital, which reported holding $66.6 million worth of stock at the end of September. It was followed by Lone Pine Capital with a $46.2 million position. Other investors bullish on the company included Adage Capital Management, Samlyn Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Key Square Capital Management allocated the biggest weight to XP Inc. (NASDAQ:XP), around 10.2% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, designating 2.67 percent of its 13F equity portfolio to XP.

As aggregate interest increased, specific money managers have jumped into XP Inc. (NASDAQ:XP) headfirst. Maverick Capital, managed by Lee Ainslie, assembled the largest position in XP Inc. (NASDAQ:XP). Maverick Capital had $66.6 million invested in the company at the end of the quarter. Lone Pine Capital also initiated a $46.2 million position during the quarter. The following funds were also among the new XP investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Robert Pohly’s Samlyn Capital, and Ken Griffin’s Citadel Investment Group.

Let’s also examine hedge fund activity in other stocks similar to XP Inc. (NASDAQ:XP). We will take a look at Fastenal Company (NASDAQ:FAST), Ball Corporation (NYSE:BLL), Copart, Inc. (NASDAQ:CPRT), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks’ market values resemble XP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FAST 33 834608 3
BLL 44 679601 10
CPRT 46 984642 3
AMP 37 1122580 8
Average 40 905358 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $905 million. That figure was $398 million in XP’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Fastenal Company (NASDAQ:FAST) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks XP Inc. (NASDAQ:XP) is even less popular than FAST. Hedge funds dodged a bullet by taking a bearish stance towards XP. 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 XP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XP investors were disappointed as the stock returned -40% 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.