Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Copa Holdings, S.A. (NYSE:CPA) was in 15 hedge funds' portfolios at the end of the fourth quarter of 2018. CPA has experienced a decrease in support from the world's most elite money managers of late. There were 19 hedge funds in our database with CPA holdings at the end of the previous quarter. Our calculations also showed that cpa isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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.
We're going to take a look at the recent hedge fund action encompassing Copa Holdings, S.A. (NYSE:CPA).
How are hedge funds trading Copa Holdings, S.A. (NYSE:CPA)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CPA over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in Copa Holdings, S.A. (NYSE:CPA), which was worth $101.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $65 million worth of shares. Moreover, Polar Capital, Two Sigma Advisors, and Diamond Hill Capital were also bullish on Copa Holdings, S.A. (NYSE:CPA), allocating a large percentage of their portfolios to this stock.
Since Copa Holdings, S.A. (NYSE:CPA) has witnessed falling interest from hedge fund managers, logic holds that there were a few hedgies who were dropping their full holdings in the third quarter. Interestingly, John Tompkins's Tyvor Capital sold off the largest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $15.9 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund dropped about $7.2 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Copa Holdings, S.A. (NYSE:CPA). We will take a look at Turquoise Hill Resources Ltd (NYSE:TRQ), Anaplan, Inc. (NYSE:PLAN), Marriott Vacations Worldwide Corporation (NYSE:VAC), and Churchill Downs Incorporated (NASDAQ:CHDN). This group of stocks' market valuations match CPA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRQ,16,837928,-2 PLAN,21,442876,21 VAC,26,385657,-6 CHDN,26,475766,0 Average,22.25,535557,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $536 million. That figure was $277 million in CPA's case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Turquoise Hill Resources Ltd (NYSE:TRQ) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Copa Holdings, S.A. (NYSE:CPA) is even less popular than TRQ. Hedge funds dodged a bullet by taking a bearish stance towards CPA. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CPA wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); CPA investors were disappointed as the stock returned 1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.