Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Enel Americas S.A. (NYSE:ENIA).
Hedge fund interest in Enel Americas S.A. (NYSE:ENIA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ENIA to other stocks including Laboratory Corp. of America Holdings (NYSE:LH), POSCO (NYSE:PKX), and Nomura Holdings, Inc. (NYSE:NMR) to get a better sense of its popularity.
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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s check out the key hedge fund action encompassing Enel Americas S.A. (NYSE:ENIA).
How are hedge funds trading Enel Americas S.A. (NYSE:ENIA)?
At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in ENIA 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.
The largest stake in Enel Americas S.A. (NYSE:ENIA) was held by AQR Capital Management, which reported holding $83 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $76.4 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Enel Americas S.A. (NYSE:ENIA), around 0.18% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to ENIA.
Judging by the fact that Enel Americas S.A. (NYSE:ENIA) has witnessed bearish sentiment from the smart money, it’s easy to see that there exists a select few funds that slashed their full holdings by the end of the third quarter. Intriguingly, Noam Gottesman’s GLG Partners cut the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $5.1 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also sold off its stock, about $0.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Enel Americas S.A. (NYSE:ENIA). These stocks are Laboratory Corp. of America Holdings (NYSE:LH), POSCO (NYSE:PKX), Nomura Holdings, Inc. (NYSE:NMR), and Invitation Homes Inc. (NYSE:INVH). All of these stocks’ market caps are similar to ENIA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LH | 53 | 1291810 | 10 |
| PKX | 10 | 64171 | -1 |
| NMR | 5 | 26003 | 0 |
| INVH | 33 | 1112180 | 3 |
| Average | 25.25 | 623541 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $624 million. That figure was $217 million in ENIA’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Enel Americas S.A. (NYSE:ENIA) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ENIA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ENIA investors were disappointed as the stock returned -41% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
