XP Inc. (XP): Are Hedge Funds Right About Dumping This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtXP Inc. (NASDAQ:XP) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

XP Inc. (NASDAQ:XP) was in 13 hedge funds’ portfolios at the end of March. XP investors should be aware of a decrease in hedge fund sentiment of late. There were 28 hedge funds in our database with XP holdings at the end of the previous quarter. Our calculations also showed that XP 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.

Scott Bessent of Key Square Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 states that pay the most federal taxes to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action regarding XP Inc. (NASDAQ:XP).

How are hedge funds trading XP Inc. (NASDAQ:XP)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -54% from the fourth quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in XP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XP A Good Stock To Buy?

More specifically, Adage Capital Management was the largest shareholder of XP Inc. (NASDAQ:XP), with a stake worth $59.2 million reported as of the end of September. Trailing Adage Capital Management was Maverick Capital, which amassed a stake valued at $52.7 million. Alkeon Capital Management, Samlyn Capital, and Citadel Investment Group 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 ThornTree Capital Partners allocated the biggest weight to XP Inc. (NASDAQ:XP), around 1.13% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, dishing out 1.11 percent of its 13F equity portfolio to XP.

Because XP Inc. (NASDAQ:XP) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers that slashed their positions entirely last quarter. Intriguingly,  Lone Pine Capital dropped the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $46.2 million in stock. Dan Loeb’s fund, Third Point, also dropped its stock, about $30.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 15 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as XP Inc. (NASDAQ:XP) but similarly valued. These stocks are FMC Corporation (NYSE:FMC), Fifth Third Bancorp (NASDAQ:FITB), Brookfield Infrastructure Partners L.P. (NYSE:BIP), and Jacobs Engineering Group Inc. (NYSE:J). This group of stocks’ market valuations are closest to XP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMC 39 560040 4
FITB 30 384097 -11
BIP 14 55630 3
J 28 995596 -7
Average 27.75 498841 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $166 million in XP’s case. FMC Corporation (NYSE:FMC) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks XP Inc. (NASDAQ:XP) is even less popular than BIP. Hedge funds clearly dropped the ball on XP 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on XP as the stock returned 139.2% so far in the second quarter and outperformed the market by an even larger margin.

Follow Xp Inc. (NASDAQ:XP)

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