We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Ultrapar Participacoes SA (NYSE:UGP).
Hedge fund interest in Ultrapar Participacoes SA (NYSE:UGP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Planet Fitness Inc (NYSE:PLNT), Old Republic International Corporation (NYSE:ORI), and The Medicines Company (NASDAQ:MDCO) to gather more data points. Our calculations also showed that UGP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
[caption id="attachment_27480" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to take a look at the key hedge fund action encompassing Ultrapar Participacoes SA (NYSE:UGP).
What does smart money think about Ultrapar Participacoes SA (NYSE:UGP)?
Heading into the first quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UGP over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Ultrapar Participacoes SA (NYSE:UGP). Renaissance Technologies has a $59.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Millennium Management, managed by Israel Englander, which holds a $6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Cliff Asness's AQR Capital Management and Michael Gelband's ExodusPoint Capital. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Ultrapar Participacoes SA (NYSE:UGP), around 0.05% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to UGP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Arrowstreet Capital).
Let's now review hedge fund activity in other stocks similar to Ultrapar Participacoes SA (NYSE:UGP). We will take a look at Planet Fitness Inc (NYSE:PLNT), Old Republic International Corporation (NYSE:ORI), The Medicines Company (NASDAQ:MDCO), and HubSpot Inc (NYSE:HUBS). This group of stocks' market values resemble UGP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLNT,34,837711,-3 ORI,20,344967,3 MDCO,60,2420538,26 HUBS,30,651657,-6 Average,36,1063718,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1064 million. That figure was $70 million in UGP's case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Old Republic International Corporation (NYSE:ORI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ultrapar Participacoes SA (NYSE:UGP) is even less popular than ORI. Hedge funds dodged a bullet by taking a bearish stance towards UGP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately UGP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); UGP investors were disappointed as the stock returned -59.1% during the same time period 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 most of these stocks already outperformed the market so far in Q1. 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.