We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards LATAM Airlines Group S.A. (NYSE:LTM).
LATAM Airlines Group S.A. (NYSE:LTM) investors should be aware of an increase in hedge fund interest recently. Our calculations also showed that LTM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the fresh hedge fund action surrounding LATAM Airlines Group S.A. (NYSE:LTM).
How have hedgies been trading LATAM Airlines Group S.A. (NYSE:LTM)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LTM over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in LATAM Airlines Group S.A. (NYSE:LTM). Renaissance Technologies has a $16.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $4.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish contain Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Ionic Capital Management allocated the biggest weight to LATAM Airlines Group S.A. (NYSE:LTM), around 0.17% of its 13F portfolio. Centiva Capital is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to LTM.
As industrywide interest jumped, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in LATAM Airlines Group S.A. (NYSE:LTM). Arrowstreet Capital had $3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $1.2 million investment in the stock during the quarter. The other funds with brand new LTM positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, John Overdeck and David Siegel’s Two Sigma Advisors, and Bart Baum’s Ionic Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as LATAM Airlines Group S.A. (NYSE:LTM) but similarly valued. These stocks are Sealed Air Corporation (NYSE:SEE), The Middleby Corporation (NASDAQ:MIDD), Sabre Corporation (NASDAQ:SABR), and Israel Chemicals Ltd. (NYSE:ICL). This group of stocks’ market values match LTM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEE | 30 | 860935 | -4 |
| MIDD | 35 | 456204 | 10 |
| SABR | 24 | 204823 | -5 |
| ICL | 6 | 14809 | 1 |
| Average | 23.75 | 384193 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $384 million. That figure was $33 million in LTM’s case. The Middleby Corporation (NASDAQ:MIDD) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 6 bullish hedge fund positions. LATAM Airlines Group S.A. (NYSE:LTM) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately LTM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LTM investors were disappointed as the stock returned -72% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
