Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Central Puerto S.A. (NYSE:CEPU).
Central Puerto S.A. (NYSE:CEPU) was in 7 hedge funds’ portfolios at the end of September. CEPU has experienced a decrease in hedge fund interest lately. There were 9 hedge funds in our database with CEPU holdings at the end of the previous quarter. Our calculations also showed that CEPU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
James Dondero of Highland Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the recent hedge fund action surrounding Central Puerto S.A. (NYSE:CEPU).
How are hedge funds trading Central Puerto S.A. (NYSE:CEPU)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CEPU over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, EMS Capital, managed by Edmond M. Safra, holds the largest position in Central Puerto S.A. (NYSE:CEPU). EMS Capital has a $4.7 million position in the stock, comprising 0.4% of its 13F portfolio. On EMS Capital’s heels is James Dondero of Highland Capital Management, with a $2.8 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Ken Griffin’s Citadel Investment Group, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and Renaissance Technologies. In terms of the portfolio weights assigned to each position EMS Capital allocated the biggest weight to Central Puerto S.A. (NYSE:CEPU), around 0.38% of its 13F portfolio. Highland Capital Management is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to CEPU.
Seeing as Central Puerto S.A. (NYSE:CEPU) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few funds who sold off their full holdings in the third quarter. Intriguingly, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors sold off the largest position of the “upper crust” of funds watched by Insider Monkey, comprising about $2.7 million in stock, and Robert Charles Gibbins’s Autonomy Capital was right behind this move, as the fund dumped about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Central Puerto S.A. (NYSE:CEPU). These stocks are AVROBIO, Inc. (NASDAQ:AVRO), NACCO Industries, Inc. (NYSE:NC), Village Farms International, Inc. (NASDAQ:VFF), and Heritage Insurance Holdings Inc (NYSE:HRTG). This group of stocks’ market caps are closest to CEPU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVRO | 11 | 117439 | 2 |
| NC | 11 | 23595 | 2 |
| VFF | 5 | 4688 | 1 |
| HRTG | 9 | 48243 | -5 |
| Average | 9 | 48491 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $10 million in CEPU’s case. AVROBIO, Inc. (NASDAQ:AVRO) is the most popular stock in this table. On the other hand Village Farms International, Inc. (NASDAQ:VFF) is the least popular one with only 5 bullish hedge fund positions. Central Puerto S.A. (NYSE:CEPU) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CEPU as the stock returned 38.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
