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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 Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) based on those filings.
Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of December. 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 Universal Display Corporation (NASDAQ:OLED), MGM Growth Properties LLC (NYSE:MGP), and 58.com Inc (NYSE:WUBA) to gather more data points. Our calculations also showed that AVAL 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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John Overdeck of Two Sigma Advisors[/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. Keeping this in mind let's view the latest hedge fund action encompassing Grupo Aval Acciones y Valores S.A. (NYSE:AVAL).
How have hedgies been trading Grupo Aval Acciones y Valores S.A. (NYSE:AVAL)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in AVAL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), with a stake worth $14.7 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $3.8 million. Bailard Inc, D E Shaw, and Two Sigma Advisors 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 Qtron Investments allocated the biggest weight to Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), around 0.13% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to AVAL.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Stevens Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let's also examine hedge fund activity in other stocks similar to Grupo Aval Acciones y Valores S.A. (NYSE:AVAL). These stocks are Universal Display Corporation (NASDAQ:OLED), MGM Growth Properties LLC (NYSE:MGP), 58.com Inc (NYSE:WUBA), and National Oilwell Varco, Inc. (NYSE:NOV). This group of stocks' market valuations are closest to AVAL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OLED,31,329009,5 MGP,29,815269,8 WUBA,21,475926,-5 NOV,31,1019880,5 Average,28,660021,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $660 million. That figure was $23 million in AVAL's case. Universal Display Corporation (NASDAQ:OLED) is the most popular stock in this table. On the other hand 58.com Inc (NYSE:WUBA) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is even less popular than WUBA. Hedge funds dodged a bullet by taking a bearish stance towards AVAL. 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 AVAL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AVAL investors were disappointed as the stock returned -45.8% 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.