We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Compania Cervecerias Unidas S.A. (NYSE:CCU) and determine whether hedge funds skillfully traded this stock.
Is Compania Cervecerias Unidas S.A. (NYSE:CCU) ready to rally soon? Money managers were taking a bullish view. The number of long hedge fund positions improved by 3 recently. Our calculations also showed that CCU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_30600" align="aligncenter" width="400"] Bruce Kovner of Caxton Associates LP[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a peek at the latest hedge fund action encompassing Compania Cervecerias Unidas S.A. (NYSE:CCU).
How are hedge funds trading Compania Cervecerias Unidas S.A. (NYSE:CCU)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in CCU a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Compania Cervecerias Unidas S.A. (NYSE:CCU), with a stake worth $6.3 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $5.4 million. AQR Capital Management, Two Sigma Advisors, and Royce & Associates 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 Caxton Associates LP allocated the biggest weight to Compania Cervecerias Unidas S.A. (NYSE:CCU), around 0.04% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to CCU.
As one would reasonably expect, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Compania Cervecerias Unidas S.A. (NYSE:CCU). Arrowstreet Capital had $1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $0.8 million position during the quarter. The following funds were also among the new CCU investors: Bruce Kovner's Caxton Associates LP, Greg Eisner's Engineers Gate Manager, and Dmitry Balyasny's Balyasny Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Compania Cervecerias Unidas S.A. (NYSE:CCU). We will take a look at Hutchison China MediTech Limited (NASDAQ:HCM), Bill.com Holdings, Inc. (NYSE:BILL), Semtech Corporation (NASDAQ:SMTC), and EQM Midstream Partners, LP (NYSE:EQM). This group of stocks' market valuations match CCU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCM,6,19384,-1 BILL,22,385025,-10 SMTC,17,145584,5 EQM,6,15334,-5 Average,12.75,141332,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $24 million in CCU's case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 6 bullish hedge fund positions. Compania Cervecerias Unidas S.A. (NYSE:CCU) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CCU wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CCU investors were disappointed as the stock returned 10.2% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.