"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Compania Cervecerias Unidas S.A. (NYSE:CCU) was in 14 hedge funds' portfolios at the end of the third quarter of 2018. CCU investors should be aware of an increase in hedge fund sentiment lately. There were 11 hedge funds in our database with CCU holdings at the end of the previous quarter. Our calculations also showed that ccu isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's analyze the latest hedge fund action regarding Compania Cervecerias Unidas S.A. (NYSE:CCU).
How are hedge funds trading Compania Cervecerias Unidas S.A. (NYSE:CCU)?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CCU over the last 13 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Compania Cervecerias Unidas S.A. (NYSE:CCU) was held by Arrowstreet Capital, which reported holding $31.7 million worth of stock at the end of September. It was followed by International Value Advisers with a $17.9 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and AQR Capital Management.
As one would reasonably expect, key hedge funds have been driving this bullishness. GLG Partners, managed by Noam Gottesman, created the most outsized position in Compania Cervecerias Unidas S.A. (NYSE:CCU). GLG Partners had $5.4 million invested in the company at the end of the quarter. Robert Joseph Caruso's Select Equity Group also made a $4 million investment in the stock during the quarter. The following funds were also among the new CCU investors: Paul Marshall and Ian Wace's Marshall Wace LLP and Mike Vranos's Ellington.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Compania Cervecerias Unidas S.A. (NYSE:CCU) but similarly valued. These stocks are Penumbra Inc (NYSE:PEN), Ultrapar Participacoes SA (NYSE:UGP), Chemed Corporation (NYSE:CHE), and Hudson Pacific Properties Inc (NYSE:HPP). This group of stocks' market caps are closest to CCU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEN,25,313000,1 UGP,8,39754,0 CHE,23,465135,1 HPP,13,211981,-2 Average,17.25,257468,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $100 million in CCU's case. Penumbra Inc (NYSE:PEN) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 8 bullish hedge fund positions. Compania Cervecerias Unidas S.A. (NYSE:CCU) 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. In this regard PEN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.