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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Enel Chile S.A. (NYSE:ENIC) based on those filings.
Is Enel Chile S.A. (NYSE:ENIC) a buy here? The best stock pickers are turning less bullish. The number of bullish hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that ENIC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ENIC was in 6 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 8 hedge funds in our database with ENIC positions at the end of the previous quarter.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
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Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the fresh hedge fund action encompassing Enel Chile S.A. (NYSE:ENIC).
How have hedgies been trading Enel Chile S.A. (NYSE:ENIC)?
At the end of the fourth quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the third quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in ENIC a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Enel Chile S.A. (NYSE:ENIC), with a stake worth $12.3 million reported as of the end of September. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $9.6 million. Renaissance Technologies, Arrowstreet Capital, and D E Shaw 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 AQR Capital Management allocated the biggest weight to Enel Chile S.A. (NYSE:ENIC), around 0.01% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to ENIC.
Seeing as Enel Chile S.A. (NYSE:ENIC) has experienced declining sentiment from the smart money, logic holds that there was a specific group of money managers who sold off their positions entirely by the end of the third quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group dropped the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $0.2 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund sold off about $0.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Enel Chile S.A. (NYSE:ENIC) but similarly valued. We will take a look at First American Financial Corp (NYSE:FAF), HD Supply Holdings Inc (NASDAQ:HDS), Moderna, Inc. (NASDAQ:MRNA), and Flowserve Corporation (NYSE:FLS). This group of stocks' market caps are similar to ENIC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FAF,42,895235,4 HDS,38,950035,3 MRNA,12,256023,3 FLS,26,286522,4 Average,29.5,596954,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $39 million in ENIC's case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Moderna, Inc. (NASDAQ:MRNA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Enel Chile S.A. (NYSE:ENIC) is even less popular than MRNA. Hedge funds dodged a bullet by taking a bearish stance towards ENIC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately ENIC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ENIC investors were disappointed as the stock returned -27.8% during the same time 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.