Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in LATAM Airlines Group S.A. (NYSE:LTM)? The smart money sentiment can provide an answer to this question.
Is LATAM Airlines Group S.A. (NYSE:LTM) a buy, sell, or hold? Money managers are becoming hopeful. The number of long hedge fund bets rose by 4 lately. Our calculations also showed that LTM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). LTM was in 9 hedge funds' portfolios at the end of the third quarter of 2019. There were 5 hedge funds in our database with LTM holdings at the end of the previous quarter. 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' 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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a peek at the key hedge fund action surrounding LATAM Airlines Group S.A. (NYSE:LTM).
How are hedge funds trading LATAM Airlines Group S.A. (NYSE:LTM)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 80% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in LTM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of LATAM Airlines Group S.A. (NYSE:LTM), with a stake worth $14.6 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $4.6 million. AQR Capital Management, Citadel Investment Group, and Marshall Wace 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 Crestwood Capital Management allocated the biggest weight to LATAM Airlines Group S.A. (NYSE:LTM), around 0.25% of its 13F portfolio. Caxton Associates is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to LTM.
As one would reasonably expect, key hedge funds have jumped into LATAM Airlines Group S.A. (NYSE:LTM) headfirst. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in LATAM Airlines Group S.A. (NYSE:LTM). Citadel Investment Group had $3.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $0.5 million position during the quarter. The other funds with brand new LTM positions are Steve Cohen's Point72 Asset Management and Bruce Kovner's Caxton Associates.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as LATAM Airlines Group S.A. (NYSE:LTM) but similarly valued. These stocks are Monolithic Power Systems, Inc. (NASDAQ:MPWR), CubeSmart (NYSE:CUBE), Etsy Inc (NASDAQ:ETSY), and Woodward Inc (NASDAQ:WWD). This group of stocks' market caps match LTM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MPWR,22,192922,-1 CUBE,23,308978,5 ETSY,46,1224288,5 WWD,23,340865,-5 Average,28.5,516763,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $29 million in LTM's case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Monolithic Power Systems, Inc. (NASDAQ:MPWR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks LATAM Airlines Group S.A. (NYSE:LTM) is even less popular than MPWR. Hedge funds dodged a bullet by taking a bearish stance towards LTM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LTM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LTM investors were disappointed as the stock returned -3.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.