Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Arco Platform Limited (NASDAQ:ARCE) from the perspective of those elite funds.
Arco Platform Limited (NASDAQ:ARCE) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that ARCE 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We’re going to analyze the fresh hedge fund action encompassing Arco Platform Limited (NASDAQ:ARCE).
What have hedge funds been doing with Arco Platform Limited (NASDAQ:ARCE)?
Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARCE over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Tekne Capital Management held the most valuable stake in Arco Platform Limited (NASDAQ:ARCE), which was worth $20.4 million at the end of the second quarter. On the second spot was SCGE Management which amassed $13.1 million worth of shares. Moreover, ThornTree Capital Partners, Driehaus Capital, and Millennium Management were also bullish on Arco Platform Limited (NASDAQ:ARCE), allocating a large percentage of their portfolios to this stock.
Seeing as Arco Platform Limited (NASDAQ:ARCE) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that elected to cut their entire stakes heading into Q3. Intriguingly, Alex Sacerdote’s Whale Rock Capital Management dropped the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $5.9 million in stock. Nehal Chopra’s fund, Ratan Capital Group, also cut its stock, about $1.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arco Platform Limited (NASDAQ:ARCE) but similarly valued. These stocks are RH (NYSE:RH), Genomic Health, Inc. (NASDAQ:GHDX), WD-40 Company (NASDAQ:WDFC), and Washington Real Estate Investment Trust (NYSE:WRE). This group of stocks’ market valuations resemble ARCE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RH | 28 | 391899 | -8 |
| GHDX | 18 | 880407 | -7 |
| WDFC | 15 | 127686 | 1 |
| WRE | 6 | 102375 | -3 |
| Average | 16.75 | 375592 | -4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $49 million in ARCE’s case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 6 bullish hedge fund positions. Arco Platform Limited (NASDAQ:ARCE) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ARCE as the stock returned 15.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
