Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Mercadolibre Inc (NASDAQ:MELI) and see how the stock is affected by the recent hedge fund activity.
Mercadolibre Inc (NASDAQ:MELI) has seen an increase in enthusiasm from smart money in recent months. Our calculations also showed that MELI isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the recent hedge fund action encompassing Mercadolibre Inc (NASDAQ:MELI).
How have hedgies been trading Mercadolibre Inc (NASDAQ:MELI)?
Heading into the third quarter of 2019, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MELI over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in Mercadolibre Inc (NASDAQ:MELI), which was worth $761.3 million at the end of the second quarter. On the second spot was Viking Global which amassed $523 million worth of shares. Moreover, Generation Investment Management, D E Shaw, and Tybourne Capital Management were also bullish on Mercadolibre Inc (NASDAQ:MELI), allocating a large percentage of their portfolios to this stock.
Now, key money managers were leading the bulls’ herd. Tybourne Capital Management, managed by Eashwar Krishnan, established the most outsized position in Mercadolibre Inc (NASDAQ:MELI). Tybourne Capital Management had $304.2 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $85.7 million investment in the stock during the quarter. The following funds were also among the new MELI investors: Kevin Cottrell and Chris LaSusa’s KCL Capital, and Benjamin A. Smith’s Laurion Capital Management.
Let’s go over hedge fund activity in other stocks similar to Mercadolibre Inc (NASDAQ:MELI). These stocks are Alcon Inc. (NYSE:ALC), Electronic Arts Inc. (NASDAQ:EA), Ingersoll-Rand Plc (NYSE:IR), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). This group of stocks’ market caps match MELI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALC | 18 | 454484 | 18 |
| EA | 59 | 2605780 | -2 |
| IR | 40 | 2101164 | 1 |
| ALXN | 44 | 2636589 | 9 |
| Average | 40.25 | 1949504 | 6.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1950 million. That figure was $3847 million in MELI’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 18 bullish hedge fund positions. Mercadolibre Inc (NASDAQ:MELI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MELI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MELI were disappointed as the stock returned -9.9% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
