Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Grupo Aval Acciones y Valores S.A. (NYSE:AVAL).
Is Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) going to take off soon? Hedge funds are getting less bullish. The number of bullish hedge fund positions decreased by 1 recently. Our calculations also showed that AVAL isn't among the 30 most popular stocks among hedge funds (see the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the new hedge fund action regarding Grupo Aval Acciones y Valores S.A. (NYSE:AVAL).
What does smart money think about Grupo Aval Acciones y Valores S.A. (NYSE:AVAL)?
At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AVAL over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) was held by Renaissance Technologies, which reported holding $12.6 million worth of stock at the end of March. It was followed by Millennium Management with a $3 million position. Other investors bullish on the company included Bailard Inc, D E Shaw, and Qtron Investments.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified AVAL as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) but similarly valued. These stocks are NICE Ltd. (NASDAQ:NICE), Aspen Technology, Inc. (NASDAQ:AZPN), F5 Networks, Inc. (NASDAQ:FFIV), and Euronet Worldwide, Inc. (NASDAQ:EEFT). This group of stocks' market valuations are closest to AVAL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NICE,19,381690,2 AZPN,26,1272257,1 FFIV,23,1083984,-1 EEFT,33,409978,0 Average,25.25,786977,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $787 million. That figure was $19 million in AVAL's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand NICE Ltd. (NASDAQ:NICE) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is even less popular than NICE. Hedge funds dodged a bullet by taking a bearish stance towards AVAL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AVAL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AVAL investors were disappointed as the stock returned -5.2% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.