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Hedge Funds Are Souring On Mercadolibre Inc (MELI)

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 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 Mercadolibre Inc (NASDAQ:MELI).

Is Mercadolibre Inc (NASDAQ:MELI) an outstanding stock to buy now? The smart money is getting less optimistic. The number of bullish hedge fund positions were cut by 7 recently. Our calculations also showed that MELI isn't among the 30 most popular stocks among hedge funds. MELI was in 45 hedge funds' portfolios at the end of September. There were 52 hedge funds in our database with MELI positions at the end of the previous quarter.

If you'd ask most shareholders, hedge funds are perceived as unimportant, outdated investment vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, We look at the upper echelon of this club, approximately 750 funds. Most estimates calculate that this group of people watch over the lion's share of the smart money's total capital, and by monitoring their best stock picks, Insider Monkey has figured out numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum 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_26082" align="aligncenter" width="466"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the key hedge fund action regarding Mercadolibre Inc (NASDAQ:MELI).

What have hedge funds been doing with Mercadolibre Inc (NASDAQ:MELI)?

At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. 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 positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with MELI 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 portfolio. Kora Management is also relatively very bullish on the stock, designating 13.17 percent of its 13F equity portfolio to MELI.

Judging by the fact that Mercadolibre Inc (NASDAQ:MELI) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there were a few hedgies that elected to cut their full holdings in the third quarter. It's worth mentioning that Brandon Haley's Holocene Advisors sold off the biggest investment of the 750 funds followed by Insider Monkey, worth an estimated $85.7 million in call options, and Brandon Haley's Holocene Advisors was right behind this move, as the fund cut about $49.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 7 funds in the third quarter.

Let's check out 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). This group of stocks' market valuations match MELI's market valuation.

[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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MELI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MELI were disappointed as the stock returned 2.6% during the fourth quarter (through 11/22) 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 in Q4.

Disclosure: None. This article was originally published at Insider Monkey.

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