It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Despegar.com, Corp. (NYSE:DESP) during the quarter below.
Despegar.com, Corp. (NYSE:DESP) shareholders have witnessed an increase in hedge fund sentiment recently. DESP was in 13 hedge funds' portfolios at the end of September. There were 11 hedge funds in our database with DESP holdings at the end of the previous quarter. Our calculations also showed that DESP isn't among the 30 most popular stocks among hedge funds.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a peek at the fresh hedge fund action surrounding Despegar.com, Corp. (NYSE:DESP).
How have hedgies been trading Despegar.com, Corp. (NYSE:DESP)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in DESP heading into this year. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the most valuable position in Despegar.com, Corp. (NYSE:DESP). Tiger Global Management LLC has a $408.2 million position in the stock, comprising 1.9% of its 13F portfolio. On Tiger Global Management LLC's heels is Armistice Capital, led by Steven Boyd, holding a $26.4 million position; 1.6% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise Ryan Pedlow's Two Creeks Capital Management, Greg Poole's Echo Street Capital Management and Paul Reeder and Edward Shapiro's PAR Capital Management.
Now, key money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, established the most valuable position in Despegar.com, Corp. (NYSE:DESP). Echo Street Capital Management had $8.4 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $2 million position during the quarter. The other funds with brand new DESP positions are Julian Robertson's Tiger Management and Jim Simons's Renaissance Technologies.
Let's also examine hedge fund activity in other stocks similar to Despegar.com, Corp. (NYSE:DESP). These stocks are Easterly Government Properties Inc (NYSE:DEA), KKR Real Estate Finance Trust Inc. (NYSE:KREF), KMG Chemicals, Inc. (NYSE:KMG), and Rambus Inc. (NASDAQ:RMBS). This group of stocks' market valuations are similar to DESP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DEA,8,190165,-4 KREF,8,22485,3 KMG,23,198565,7 RMBS,11,64408,2 Average,12.5,118906,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $470 million in DESP's case. KMG Chemicals, Inc. (NYSE:KMG) is the most popular stock in this table. On the other hand Easterly Government Properties Inc (NYSE:DEA) is the least popular one with only 8 bullish hedge fund positions. Despegar.com, Corp. (NYSE:DESP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard KMG might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.