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 Liberty Latin America Ltd. (NASDAQ:LILAK).
Is Liberty Latin America Ltd. (NASDAQ:LILAK) ready to rally soon? Investors who are in the know are turning less bullish. The number of bullish hedge fund positions dropped by 1 lately. Our calculations also showed that lilak isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the recent hedge fund action regarding Liberty Latin America Ltd. (NASDAQ:LILAK).
Hedge fund activity in Liberty Latin America Ltd. (NASDAQ:LILAK)
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in LILAK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ashe Capital held the most valuable stake in Liberty Latin America Ltd. (NASDAQ:LILAK), which was worth $120 million at the end of the first quarter. On the second spot was Fine Capital Partners which amassed $118.7 million worth of shares. Moreover, Two Creeks Capital Management, Wallace R. Weitz & Co., and GoldenTree Asset Management were also bullish on Liberty Latin America Ltd. (NASDAQ:LILAK), allocating a large percentage of their portfolios to this stock.
Seeing as Liberty Latin America Ltd. (NASDAQ:LILAK) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few money managers who were dropping their positions entirely last quarter. At the top of the heap, David Halpert’s Prince Street Capital Management dropped the largest position of the 700 funds watched by Insider Monkey, worth about $10.7 million in stock. Stephen J. Errico’s fund, Locust Wood Capital Advisers, also said goodbye to its stock, about $5.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Liberty Latin America Ltd. (NASDAQ:LILAK) but similarly valued. These stocks are Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), Associated Banc-Corp (NYSE:ASB), Hancock Whitney Corporation (NASDAQ:HWC), and First Hawaiian, Inc. (NASDAQ:FHB). This group of stocks’ market valuations are closest to LILAK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBGI | 28 | 496817 | -5 |
| ASB | 16 | 216472 | -2 |
| HWC | 15 | 112402 | 0 |
| FHB | 23 | 384375 | 2 |
| Average | 20.5 | 302517 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $303 million. That figure was $417 million in LILAK’s case. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is the most popular stock in this table. On the other hand Hancock Whitney Corporation (NASDAQ:HWC) is the least popular one with only 15 bullish hedge fund positions. Liberty Latin America Ltd. (NASDAQ:LILAK) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LILAK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LILAK investors were disappointed as the stock returned -12.1% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
