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Should You Avoid Itau Unibanco Holding SA (ITUB)?

Abigail Fisher

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Itau Unibanco Holding SA (NYSE:ITUB).

Itau Unibanco Holding SA (NYSE:ITUB) shareholders have witnessed a decrease in support from the world's most elite money managers of late. Our calculations also showed that ITUB 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.

5 Most Popular Stocks Among Hedge Funds

According to most traders, hedge funds are perceived as underperforming, old investment vehicles of years past. While there are over 8000 funds in operation today, We look at the crème de la crème of this group, approximately 750 funds. These hedge fund managers command most of all hedge funds' total asset base, and by following their finest stock picks, Insider Monkey has identified a number of investment strategies that have historically defeated the broader indices. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_30614" align="aligncenter" width="489"] Howard Marks of Oaktree Capital Management[/caption]

Howard Marks OAKTREE CAPITAL MANAGEMENT

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 look at the fresh hedge fund action encompassing Itau Unibanco Holding SA (NYSE:ITUB).

How have hedgies been trading Itau Unibanco Holding SA (NYSE:ITUB)?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ITUB over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Itau Unibanco Holding SA (NYSE:ITUB). Fisher Asset Management has a $453 million position in the stock, comprising 0.5% of its 13F portfolio. On Fisher Asset Management's heels is William B. Gray of Orbis Investment Management, with a $293.2 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Howard Marks's Oaktree Capital Management, Ken Heebner's Capital Growth Management and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Itau Unibanco Holding SA (NYSE:ITUB), around 5.15% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, setting aside 2.17 percent of its 13F equity portfolio to ITUB.

Due to the fact that Itau Unibanco Holding SA (NYSE:ITUB) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who sold off their full holdings in the third quarter. It's worth mentioning that David E. Shaw's D E Shaw said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $32.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $17.9 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Itau Unibanco Holding SA (NYSE:ITUB) but similarly valued. We will take a look at Fidelity National Information Services Inc. (NYSE:FIS), Banco Santander (Brasil) SA (NYSE:BSBR), Stryker Corporation (NYSE:SYK), and Gilead Sciences, Inc. (NASDAQ:GILD). This group of stocks' market values are closest to ITUB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIS,90,7126015,31 BSBR,14,125130,3 SYK,33,527278,3 GILD,58,3262691,1 Average,48.75,2760279,9.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $2760 million. That figure was $1061 million in ITUB's case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 14 bullish hedge fund positions. Itau Unibanco Holding SA (NYSE:ITUB) 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 ITUB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ITUB investors were disappointed as the stock returned -3.1% 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.

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