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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. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Arco Platform Limited (NASDAQ:ARCE) and determine whether the smart money was really smart about this stock.
Arco Platform Limited (NASDAQ:ARCE) was in 25 hedge funds' portfolios at the end of June. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ARCE has seen an increase in activity from the world's largest hedge funds recently. There were 16 hedge funds in our database with ARCE holdings at the end of March. Our calculations also showed that ARCE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most market participants, hedge funds are viewed as slow, old investment tools of years past. While there are greater than 8000 funds in operation at present, Our experts choose to focus on the upper echelon of this group, around 850 funds. These investment experts control bulk of the smart money's total asset base, and by observing their top equity investments, Insider Monkey has formulated many investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Richard Driehaus of Driehaus Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's take a look at the fresh hedge fund action surrounding Arco Platform Limited (NASDAQ:ARCE).
Hedge fund activity in Arco Platform Limited (NASDAQ:ARCE)
Heading into the third quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ARCE over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Cartica Management was the largest shareholder of Arco Platform Limited (NASDAQ:ARCE), with a stake worth $38.6 million reported as of the end of September. Trailing Cartica Management was Tekne Capital Management, which amassed a stake valued at $32.5 million. SCGE Management, Marcho Partners, and Driehaus 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 Marcho Partners allocated the biggest weight to Arco Platform Limited (NASDAQ:ARCE), around 15.45% of its 13F portfolio. Cartica Management is also relatively very bullish on the stock, setting aside 15.3 percent of its 13F equity portfolio to ARCE.
As industrywide interest jumped, some big names have been driving this bullishness. Castle Hook Partners, managed by Josh Donfeld and David Rogers, created the most outsized position in Arco Platform Limited (NASDAQ:ARCE). Castle Hook Partners had $6.8 million invested in the company at the end of the quarter. Hugh Sloane's Sloane Robinson Investment Management also initiated a $5.1 million position during the quarter. The other funds with brand new ARCE positions are Spencer M. Waxman's Shannon River Fund Management, Paul Tudor Jones's Tudor Investment Corp, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks similar to Arco Platform Limited (NASDAQ:ARCE). These stocks are ViaSat, Inc. (NASDAQ:VSAT), Kennametal Inc. (NYSE:KMT), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), Fiverr International Ltd. (NYSE:FVRR), Sunrun Inc (NASDAQ:RUN), DCP Midstream LP (NYSE:DCP), and SINA Corp (NASDAQ:SINA). This group of stocks' market caps resemble ARCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VSAT,23,1006955,2 KMT,10,197490,-7 SAIL,21,491091,0 FVRR,21,184813,8 RUN,21,682771,-3 DCP,2,3369,-2 SINA,16,103843,3 Average,16.3,381476,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $184 million in ARCE's case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Arco Platform Limited (NASDAQ:ARCE) is more popular among hedge funds. Our overall hedge fund sentiment score for ARCE is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately ARCE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ARCE were disappointed as the stock returned -7.7% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.