Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Popular Inc (NASDAQ:BPOP) changed recently.
Popular Inc (NASDAQ:BPOP) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. BPOP was in 29 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with BPOP positions at the end of the previous quarter. Our calculations also showed that BPOP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Popular Inc (NASDAQ:BPOP).
What does smart money think about Popular Inc (NASDAQ:BPOP)?
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BPOP over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Polaris Capital Management was the largest shareholder of Popular Inc (NASDAQ:BPOP), with a stake worth $218.8 million reported as of the end of September. Trailing Polaris Capital Management was AQR Capital Management, which amassed a stake valued at $176.5 million. Alyeska Investment Group, GLG Partners, and Arrowstreet Capital 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 Polaris Capital Management allocated the biggest weight to Popular Inc (NASDAQ:BPOP), around 9.83% of its 13F portfolio. Shoals Capital Management is also relatively very bullish on the stock, earmarking 9.3 percent of its 13F equity portfolio to BPOP.
Judging by the fact that Popular Inc (NASDAQ:BPOP) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the largest investment of the 750 funds followed by Insider Monkey, totaling close to $1 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Popular Inc (NASDAQ:BPOP). These stocks are First Citizens BancShares Inc. (NASDAQ:FCNCA), Nordstrom, Inc. (NYSE:JWN), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market caps are similar to BPOP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCNCA | 16 | 161401 | -1 |
| JWN | 20 | 178075 | -7 |
| ACAD | 26 | 1910582 | 5 |
| KMPR | 19 | 154935 | 0 |
| Average | 20.25 | 601248 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $601 million. That figure was $753 million in BPOP’s case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Popular Inc (NASDAQ:BPOP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BPOP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BPOP were disappointed as the stock returned 27.2% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
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.