Is Atento SA (NYSE:ATTO) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Atento SA (NYSE:ATTO) a healthy stock for your portfolio? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that ATTO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ATTO was in 7 hedge funds' portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with ATTO holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]
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 fresh hedge fund action regarding Atento SA (NYSE:ATTO).
How have hedgies been trading Atento SA (NYSE:ATTO)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATTO over the last 17 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Atento SA (NYSE:ATTO) was held by Arrowstreet Capital, which reported holding $0.8 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $0.4 million position. Other investors bullish on the company included Royce & Associates, Citadel Investment Group, and Engine Capital. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to Atento SA (NYSE:ATTO), around 0.08% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.0028 percent of its 13F equity portfolio to ATTO.
Because Atento SA (NYSE:ATTO) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds that elected to cut their entire stakes in the third quarter. At the top of the heap, James Dondero's Highland Capital Management sold off the largest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $0.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace was right behind this move, as the fund dumped about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Atento SA (NYSE:ATTO) but similarly valued. These stocks are Fluent, Inc. (NASDAQ:FLNT), SeaDrill Limited (NYSE:SDRL), Earthstone Energy, Inc. (NYSE:ESTE), and Stereotaxis Inc (NASDAQ:STXS). This group of stocks' market values are closest to ATTO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLNT,8,5064,-1 SDRL,17,53253,-1 ESTE,8,856,1 STXS,7,90884,6 Average,10,37514,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $2 million in ATTO's case. SeaDrill Limited (NYSE:SDRL) is the most popular stock in this table. On the other hand Stereotaxis Inc (NASDAQ:STXS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Atento SA (NYSE:ATTO) is even less popular than STXS. Hedge funds dodged a bullet by taking a bearish stance towards ATTO. 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 ATTO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ATTO investors were disappointed as the stock returned 1.8% 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.