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Were Hedge Funds Right About Deserting Ambev SA (ABEV)?

Reymerlyn Martin

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The fourth quarter of 2018 is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Ambev SA (NYSE:ABEV).

Ambev SA (NYSE:ABEV) investors should pay attention to a decrease in hedge fund interest of late. ABEV was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 14 hedge funds in our database with ABEV holdings at the end of the previous quarter. Our calculations also showed that ABEV isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Fisher - FISHER ASSET MANAGEMENT

We're going to take a gander at the fresh hedge fund action encompassing Ambev SA (NYSE:ABEV).

What does the smart money think about Ambev SA (NYSE:ABEV)?

At Q4's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ABEV over the last 14 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

ABEV_mar2019

The largest stake in Ambev SA (NYSE:ABEV) was held by Fisher Asset Management, which reported holding $110.2 million worth of stock at the end of September. It was followed by Capital Growth Management with a $40 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Citadel Investment Group.

Due to the fact that Ambev SA (NYSE:ABEV) has witnessed falling interest from hedge fund managers, it's safe to say that there is a sect of hedge funds who sold off their positions entirely last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest investment of the 700 funds monitored by Insider Monkey, totaling an estimated $31.7 million in stock. Richard Driehaus's fund, Driehaus Capital, also dumped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Ambev SA (NYSE:ABEV). These stocks are Duke Energy Corporation (NYSE:DUK), Sony Corporation (NYSE:SNE), The Bank of Nova Scotia (NYSE:BNS), and Becton, Dickinson and Company (NYSE:BDX). This group of stocks' market values are similar to ABEV's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DUK,17,867790,0 SNE,25,559479,-2 BNS,14,746136,3 BDX,37,908861,-4 Average,23.25,770567,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $771 million. That figure was $234 million in ABEV's case. Becton, Dickinson and Company (NYSE:BDX) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Ambev SA (NYSE:ABEV) is even less popular than BNS. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately ABEV wasn't in this group. Hedge funds that bet on ABEV were disappointed as the stock returned 10.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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