We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Ultrapar Participacoes SA (NYSE:UGP).
Ultrapar Participacoes SA (NYSE:UGP) was in 5 hedge funds' portfolios at the end of September. UGP shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 7 hedge funds in our database with UGP holdings at the end of the previous quarter. Our calculations also showed that UGP 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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. Keeping this in mind let's check out the fresh hedge fund action surrounding Ultrapar Participacoes SA (NYSE:UGP).
What does smart money think about Ultrapar Participacoes SA (NYSE:UGP)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in UGP a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in Ultrapar Participacoes SA (NYSE:UGP). Renaissance Technologies has a $38.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $5.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish contain Cliff Asness's AQR Capital Management, Michael Gelband's ExodusPoint Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Ultrapar Participacoes SA (NYSE:UGP), around 0.03% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to UGP.
Judging by the fact that Ultrapar Participacoes SA (NYSE:UGP) has experienced falling interest from hedge fund managers, logic holds that there was a specific group of hedgies who sold off their positions entirely last quarter. It's worth mentioning that Minhua Zhang's Weld Capital Management dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $0.1 million in stock. Donald Sussman's fund, Paloma Partners, also dropped its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ultrapar Participacoes SA (NYSE:UGP) but similarly valued. These stocks are Prosperity Bancshares, Inc. (NYSE:PB), Performance Food Group Company (NYSE:PFGC), Rexford Industrial Realty Inc (NYSE:REXR), and Silicon Laboratories (NASDAQ:SLAB). All of these stocks' market caps resemble UGP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PB,17,89818,1 PFGC,23,158474,4 REXR,17,68044,0 SLAB,19,71884,1 Average,19,97055,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $45 million in UGP's case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Ultrapar Participacoes SA (NYSE:UGP) is even less popular than PB. Hedge funds clearly dropped the ball on UGP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on UGP as the stock returned 13.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.