Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Liberty Latin America Ltd. (NASDAQ:LILAK).
Liberty Latin America Ltd. (NASDAQ:LILAK) was in 20 hedge funds’ portfolios at the end of September. LILAK investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 22 hedge funds in our database with LILAK positions at the end of the previous quarter. Our calculations also showed that LILAK 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Warren Buffett of Berkshire Hathaway
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action encompassing Liberty Latin America Ltd. (NASDAQ:LILAK).
What does smart money think about Liberty Latin America Ltd. (NASDAQ:LILAK)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% 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.
Of the funds tracked by Insider Monkey, Ashe Capital, managed by William Crowley, William Harker, and Stephen Blass, holds the most valuable position in Liberty Latin America Ltd. (NASDAQ:LILAK). Ashe Capital has a $127.5 million position in the stock, comprising 9.7% of its 13F portfolio. On Ashe Capital’s heels is Fine Capital Partners, led by Debra Fine, holding a $101.3 million position; the fund has 22.8% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Ryan Pedlow’s Two Creeks Capital Management, Wallace Weitz’s Wallace R. Weitz & Co. and Warren Buffett’s Berkshire Hathaway. In terms of the portfolio weights assigned to each position Fine Capital Partners allocated the biggest weight to Liberty Latin America Ltd. (NASDAQ:LILAK), around 22.85% of its 13F portfolio. Ashe Capital is also relatively very bullish on the stock, earmarking 9.74 percent of its 13F equity portfolio to LILAK.
Since Liberty Latin America Ltd. (NASDAQ:LILAK) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds who sold off their positions entirely heading into Q4. At the top of the heap, Steven Tananbaum’s GoldenTree Asset Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $23.2 million in stock, and Nick Niell’s Arrowgrass Capital Partners was right behind this move, as the fund cut about $7.4 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s now review 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 Eldorado Resorts Inc (NASDAQ:ERI), Cronos Group Inc. (NASDAQ:CRON), CenterState Bank Corporation (NASDAQ:CSFL), and Mercury General Corporation (NYSE:MCY). All of these stocks’ market caps are closest to LILAK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ERI | 44 | 1020275 | 7 |
| CRON | 11 | 93920 | 3 |
| CSFL | 12 | 83804 | -3 |
| MCY | 20 | 200510 | 4 |
| Average | 21.75 | 349627 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $375 million in LILAK’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 11 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 4.9% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
