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Were Hedge Funds Right About Dropping Itau Unibanco Holding SA (ITUB)?

Reymerlyn Martin

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 28. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Itau Unibanco Holding SA (NYSE:ITUB).

Itau Unibanco Holding SA (NYSE:ITUB) was in 18 hedge funds' portfolios at the end of the second quarter of 2019. ITUB shareholders have witnessed a decrease in enthusiasm from smart money lately. There were 21 hedge funds in our database with ITUB positions at the end of the previous quarter. Our calculations also showed that ITUB isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken-Heebner

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the key hedge fund action encompassing Itau Unibanco Holding SA (NYSE:ITUB).

How have hedgies been trading Itau Unibanco Holding SA (NYSE:ITUB)?

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in ITUB a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ITUB_oct2019

More specifically, Fisher Asset Management was the largest shareholder of Itau Unibanco Holding SA (NYSE:ITUB), with a stake worth $413.3 million reported as of the end of March. Trailing Fisher Asset Management was Orbis Investment Management, which amassed a stake valued at $306.3 million. Capital Growth Management, Oaktree Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Itau Unibanco Holding SA (NYSE:ITUB) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of hedgies who sold off their full holdings last quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $5.7 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund dropped about $3.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Itau Unibanco Holding SA (NYSE:ITUB) but similarly valued. These stocks are Altria Group Inc (NYSE:MO), American Tower Corporation (REIT) (NYSE:AMT), ASML Holding N.V. (NASDAQ:ASML), and Charter Communications, Inc. (NASDAQ:CHTR). This group of stocks' market caps match ITUB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MO,38,942106,2 AMT,42,3149112,3 ASML,12,698865,-3 CHTR,66,7511059,-1 Average,39.5,3075286,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $3075 million. That figure was $1085 million in ITUB's case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 12 bullish hedge fund positions. Itau Unibanco Holding SA (NYSE:ITUB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ITUB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ITUB investors were disappointed as the stock returned -8.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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

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