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 Compania Cervecerias Unidas S.A. (NYSE:CCU).
Compania Cervecerias Unidas S.A. (NYSE:CCU) has seen a decrease in enthusiasm from smart money of late. CCU was in 9 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with CCU positions at the end of the previous quarter. Our calculations also showed that CCU 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.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to review the key hedge fund action encompassing Compania Cervecerias Unidas S.A. (NYSE:CCU).
What does smart money think about Compania Cervecerias Unidas S.A. (NYSE:CCU)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in CCU a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Compania Cervecerias Unidas S.A. (NYSE:CCU), with a stake worth $13.6 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $7.6 million. Royce & Associates, D E Shaw, and Arrowstreet Capital 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 Qtron Investments allocated the biggest weight to Compania Cervecerias Unidas S.A. (NYSE:CCU), around 0.39% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to CCU.
Seeing as Compania Cervecerias Unidas S.A. (NYSE:CCU) has experienced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace dumped the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $1.1 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Compania Cervecerias Unidas S.A. (NYSE:CCU). These stocks are Cabot Microelectronics Corporation (NASDAQ:CCMP), NCR Corporation (NYSE:NCR), Enstar Group Ltd. (NASDAQ:ESGR), and Gold Fields Limited (NYSE:GFI). All of these stocks’ market caps are similar to CCU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCMP | 15 | 348635 | 2 |
| NCR | 31 | 284836 | 7 |
| ESGR | 12 | 415383 | 2 |
| GFI | 17 | 282757 | 3 |
| Average | 18.75 | 332903 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $33 million in CCU’s case. NCR Corporation (NYSE:NCR) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Compania Cervecerias Unidas S.A. (NYSE:CCU) is even less popular than ESGR. Hedge funds dodged a bullet by taking a bearish stance towards CCU. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CCU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CCU investors were disappointed as the stock returned -16.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
