Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like StoneCo Ltd. (NASDAQ:STNE). Currently there are two ETFs with significant weights in STNE: Global X FinTech ETF (NASDAQ:FINX) and ETFMG Prime Mobile Payments ETF (NYSE:IPAY).
Is StoneCo Ltd. (NASDAQ:STNE) a good investment today? Money managers are becoming more confident. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that STNE 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.
According to most investors, hedge funds are seen as slow, old investment vehicles of years past. While there are more than 8000 funds trading today, Our experts hone in on the leaders of this group, approximately 750 funds. Most estimates calculate that this group of people preside over the majority of the smart money’s total capital, and by paying attention to their first-class picks, Insider Monkey has found many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Lee Ainslie of Maverick Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the new hedge fund action regarding StoneCo Ltd. (NASDAQ:STNE).
Hedge fund activity in StoneCo Ltd. (NASDAQ:STNE)
At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STNE over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the largest position in StoneCo Ltd. (NASDAQ:STNE), worth close to $492.7 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Alex Sacerdote of Whale Rock Capital Management, with a $116.8 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish encompass Lee Ainslie’s Maverick Capital, Robert Pitts’s Steadfast Capital Management and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Cartica Management allocated the biggest weight to StoneCo Ltd. (NASDAQ:STNE), around 40.54% of its 13F portfolio. Prince Street Capital Management is also relatively very bullish on the stock, earmarking 9.1 percent of its 13F equity portfolio to STNE.
Consequently, specific money managers have jumped into StoneCo Ltd. (NASDAQ:STNE) headfirst. Light Street Capital, managed by Glen Kacher, initiated the most valuable position in StoneCo Ltd. (NASDAQ:STNE). Light Street Capital had $44.5 million invested in the company at the end of the quarter. Nitin Saigal and Dan Jacobs’s Kora Management also initiated a $16.3 million position during the quarter. The other funds with brand new STNE positions are David Halpert’s Prince Street Capital Management, James Dondero’s Highland Capital Management, and Peter Muller’s PDT Partners.
Let’s also examine hedge fund activity in other stocks similar to StoneCo Ltd. (NASDAQ:STNE). We will take a look at Apache Corporation (NYSE:APA), United Rentals, Inc. (NYSE:URI), Formula One Group (NASDAQ:FWONK), and Avery Dennison Corporation (NYSE:AVY). This group of stocks’ market caps are similar to STNE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APA | 26 | 692560 | 4 |
| URI | 54 | 1123521 | 10 |
| FWONK | 30 | 1915502 | -2 |
| AVY | 22 | 125790 | 1 |
| Average | 33 | 964343 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $964 million. That figure was $1337 million in STNE’s case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 22 bullish hedge fund positions. StoneCo Ltd. (NASDAQ:STNE) 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 STNE as the stock returned 17.8% 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.
