At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mercadolibre Inc (NASDAQ:MELI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Mercadolibre Inc (NASDAQ:MELI) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged from Q1 when the number of bullish hedge fund positions reached its all time high. The stock was in 60 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that MELI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MELI to other stocks including Kimberly Clark Corporation (NYSE:KMB), ABB Ltd (NYSE:ABB), and Spotify Technology S.A. (NYSE:SPOT) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glen Kacher of Light Street Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the new hedge fund action surrounding Mercadolibre Inc (NASDAQ:MELI).
Hedge fund activity in Mercadolibre Inc (NASDAQ:MELI)
At the end of the second quarter, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 52 hedge funds with a bullish position in MELI a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, GQG Partners held the most valuable stake in Mercadolibre Inc (NASDAQ:MELI), which was worth $996.6 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $653.8 million worth of shares. Generation Investment Management, Tybourne Capital Management, 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 Marcho Partners allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 25.89% of its 13F portfolio. Prince Street Capital Management is also relatively very bullish on the stock, setting aside 15.08 percent of its 13F equity portfolio to MELI.
Due to the fact that Mercadolibre Inc (NASDAQ:MELI) has faced declining sentiment from the smart money, it’s easy to see that there was a specific group of fund managers that slashed their positions entirely by the end of the second quarter. It’s worth mentioning that Ryan Frick and Oliver Evans’s Dorsal Capital Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $47.9 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund dumped about $15.1 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Mercadolibre Inc (NASDAQ:MELI). These stocks are Kimberly Clark Corporation (NYSE:KMB), ABB Ltd (NYSE:ABB), Spotify Technology S.A. (NYSE:SPOT), Dollar General Corp. (NYSE:DG), Barrick Gold Corporation (NYSE:GOLD), Equinor ASA (NYSE:EQNR), and Lam Research Corporation (NASDAQ:LRCX). This group of stocks’ market valuations match MELI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KMB | 37 | 1173794 | -9 |
| ABB | 10 | 346451 | 0 |
| SPOT | 36 | 1882209 | -4 |
| DG | 67 | 2296237 | 7 |
| GOLD | 52 | 3360658 | -2 |
| EQNR | 10 | 237155 | -1 |
| LRCX | 62 | 2537918 | 8 |
| Average | 39.1 | 1690632 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1691 million. That figure was $4428 million in MELI’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 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. Our overall hedge fund sentiment score for MELI is 78.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on MELI as the stock returned 23% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
