It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Arco Platform Limited (NASDAQ:ARCE).
Arco Platform Limited (NASDAQ:ARCE) has experienced an increase in hedge fund interest recently. Our calculations also showed that ARCE 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
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. Let’s take a peek at the key hedge fund action surrounding Arco Platform Limited (NASDAQ:ARCE).
What have hedge funds been doing with Arco Platform Limited (NASDAQ:ARCE)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARCE over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Beeneet Kothari’s Tekne Capital Management has the biggest position in Arco Platform Limited (NASDAQ:ARCE), worth close to $19.9 million, accounting for 5.9% of its total 13F portfolio. Coming in second is Christopher Lyle of SCGE Management, with a $15.2 million position; 0.8% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish contain Mark Moore’s ThornTree Capital Partners, Renaissance Technologies and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Tekne Capital Management allocated the biggest weight to Arco Platform Limited (NASDAQ:ARCE), around 5.92% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, earmarking 4.64 percent of its 13F equity portfolio to ARCE.
As one would reasonably expect, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Arco Platform Limited (NASDAQ:ARCE). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s check out hedge fund activity in other stocks similar to Arco Platform Limited (NASDAQ:ARCE). We will take a look at Vermilion Energy Inc (NYSE:VET), Cohen & Steers, Inc. (NYSE:CNS), Cogent Communications Holdings, Inc. (NASDAQ:CCOI), and Independent Bank Corp (NASDAQ:INDB). This group of stocks’ market valuations match ARCE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VET | 10 | 46500 | 3 |
| CNS | 16 | 76446 | 1 |
| CCOI | 26 | 303103 | 8 |
| INDB | 12 | 20276 | 1 |
| Average | 16 | 111581 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $61 million in ARCE’s case. Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 10 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. 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 ARCE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARCE investors were disappointed as the stock returned -15.2% 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.
