Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Mercadolibre Inc (NASDAQ:MELI) changed recently.
Mercadolibre Inc (NASDAQ:MELI) has experienced a decrease in hedge fund interest of late. Our calculations also showed that MELI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
If you'd ask most shareholders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are greater than 8000 funds in operation today, Our experts choose to focus on the aristocrats of this club, about 750 funds. It is estimated that this group of investors have their hands on the lion's share of the hedge fund industry's total asset base, and by watching their highest performing investments, Insider Monkey has spotted a number of investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year 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_189672" align="aligncenter" width="450"] David Blood of Generation Investment Management[/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 as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the fresh hedge fund action surrounding Mercadolibre Inc (NASDAQ:MELI).
What have hedge funds been doing with Mercadolibre Inc (NASDAQ:MELI)?
Heading into the fourth quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 27 hedge funds with a bullish position in MELI a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Alkeon Capital Management held the most valuable stake in Mercadolibre Inc (NASDAQ:MELI), which was worth $686 million at the end of the third quarter. On the second spot was Viking Global which amassed $445.2 million worth of shares. Generation Investment Management, Tybourne Capital Management, and Lone Pine Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tybourne Capital Management allocated the biggest weight to Mercadolibre Inc (NASDAQ:MELI), around 15.1% of its 13F portfolio. Kora Management is also relatively very bullish on the stock, designating 13.17 percent of its 13F equity portfolio to MELI.
Seeing as Mercadolibre Inc (NASDAQ:MELI) has faced falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that slashed their positions entirely last quarter. Intriguingly, Brandon Haley's Holocene Advisors said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, totaling an estimated $85.7 million in call options. Brandon Haley's fund, Holocene Advisors, also cut its call options, about $49.9 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 7 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Mercadolibre Inc (NASDAQ:MELI). These stocks are CRH PLC (NYSE:CRH), SBA Communications Corporation (NASDAQ:SBAC), Ventas, Inc. (NYSE:VTR), and Digital Realty Trust, Inc. (NYSE:DLR). All of these stocks' market caps match MELI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRH,9,129764,2 SBAC,37,1537833,6 VTR,14,352435,-4 DLR,17,135024,-1 Average,19.25,538764,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $539 million. That figure was $3157 million in MELI's case. SBA Communications Corporation (NASDAQ:SBAC) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Mercadolibre Inc (NASDAQ:MELI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MELI as the stock returned 102.9% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.