Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Gol Linhas Aereas Inteligentes SA (NYSE:GOL).
Gol Linhas Aereas Inteligentes SA (NYSE:GOL) was in 11 hedge funds’ portfolios at the end of the third quarter of 2019. GOL has experienced an increase in support from the world’s most elite money managers lately. There were 8 hedge funds in our database with GOL holdings at the end of the previous quarter. Our calculations also showed that GOL 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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the latest hedge fund action regarding Gol Linhas Aereas Inteligentes SA (NYSE:GOL).
What does smart money think about Gol Linhas Aereas Inteligentes SA (NYSE:GOL)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in GOL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Jon Bauer’s Contrarian Capital has the biggest position in Gol Linhas Aereas Inteligentes SA (NYSE:GOL), worth close to $98.7 million, corresponding to 9% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies holding a $51 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Gol Linhas Aereas Inteligentes SA (NYSE:GOL), around 9% of its 13F portfolio. BlueCrest Capital Mgmt. is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to GOL.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in Gol Linhas Aereas Inteligentes SA (NYSE:GOL). Citadel Investment Group had $3.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $0.7 million investment in the stock during the quarter. The other funds with brand new GOL positions are Sculptor Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s go over hedge fund activity in other stocks similar to Gol Linhas Aereas Inteligentes SA (NYSE:GOL). These stocks are Enphase Energy Inc (NASDAQ:ENPH), Rattler Midstream LP (NASDAQ:RTLR), Manchester United PLC (NYSE:MANU), and Methanex Corporation (NASDAQ:MEOH). This group of stocks’ market values are similar to GOL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENPH | 32 | 289899 | 12 |
| RTLR | 11 | 163347 | -9 |
| MANU | 11 | 32460 | 1 |
| MEOH | 16 | 186485 | -1 |
| Average | 17.5 | 168048 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $194 million in GOL’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Rattler Midstream LP (NASDAQ:RTLR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Gol Linhas Aereas Inteligentes SA (NYSE:GOL) is even less popular than RTLR. Hedge funds dodged a bullet by taking a bearish stance towards GOL. 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 GOL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GOL investors were disappointed as the stock returned 4.3% 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.
