Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 6 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Atento SA (NYSE:ATTO) from the perspective of those elite funds.
Atento SA (NYSE:ATTO) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds' portfolios at the end of March. 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 Tsakos Energy Navigation Limited (NYSE:TNP), Forterra, Inc. (NASDAQ:FRTA), and Craft Brew Alliance Inc (NASDAQ:BREW) to gather more data points.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_758454" align="aligncenter" width="450"] James Dondero of Highland Capital Management[/caption]
Let's view the latest hedge fund action surrounding Atento SA (NYSE:ATTO).
How are hedge funds trading Atento SA (NYSE:ATTO)?
Heading into the second quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ATTO over the last 15 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Atento SA (NYSE:ATTO) was held by Royce & Associates, which reported holding $1.3 million worth of stock at the end of March. It was followed by Marshall Wace LLP with a $1.1 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Highland Capital Management.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to Atento SA (NYSE:ATTO). These stocks are Tsakos Energy Navigation Limited (NYSE:TNP), Forterra, Inc. (NASDAQ:FRTA), Craft Brew Alliance Inc (NASDAQ:BREW), and The First Bancorp, Inc. (NASDAQ:FNLC). This group of stocks' market caps match ATTO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNP,5,30675,0 FRTA,12,38729,2 BREW,11,24228,0 FNLC,1,5532,0 Average,7.25,24791,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $6 million in ATTO's case. Forterra, Inc. (NASDAQ:FRTA) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Atento SA (NYSE:ATTO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ATTO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ATTO were disappointed as the stock returned -33% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.