Did Hedge Funds Drop The Ball On Copa Holdings, S.A. (CPA) ?

Reymerlyn Martin

Wed, Jun 26, 2019, 7:02 PM

Is Copa Holdings, S.A. (NYSE:CPA) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Copa Holdings, S.A. (NYSE:CPA) has experienced a decrease in hedge fund sentiment in recent months. CPA was in 14 hedge funds' portfolios at the end of March. There were 15 hedge funds in our database with CPA positions at the end of the previous quarter. Our calculations also showed that CPA isn't among the 30 most popular stocks among hedge funds.

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 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 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 our short portfolio.

We're going to review the latest hedge fund action regarding Copa Holdings, S.A. (NYSE:CPA).

What have hedge funds been doing with Copa Holdings, S.A. (NYSE:CPA)?

Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CPA over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Copa Holdings, S.A. (NYSE:CPA) was held by Orbis Investment Management, which reported holding $87.9 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $62.5 million position. Other investors bullish on the company included Polar Capital, Diamond Hill Capital, and Two Sigma Advisors.

Seeing as Copa Holdings, S.A. (NYSE:CPA) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there were a few funds that decided to sell off their positions entirely heading into Q3. Interestingly, David Costen Haley's HBK Investments sold off the largest position of all the hedgies followed by Insider Monkey, valued at an estimated $1.4 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dumped about $0.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds heading into Q3.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Copa Holdings, S.A. (NYSE:CPA) but similarly valued. These stocks are Merit Medical Systems, Inc. (NASDAQ:MMSI), TCF Financial Corporation (NYSE:TCF), Semtech Corporation (NASDAQ:SMTC), and Glacier Bancorp, Inc. (NASDAQ:GBCI). All of these stocks' market caps are closest to CPA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMSI,17,244449,-1 TCF,22,245330,-1 SMTC,19,139258,0 GBCI,12,57597,2 Average,17.5,171659,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $263 million in CPA's case. TCF Financial Corporation (NYSE:TCF) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 12 bullish hedge fund positions. Copa Holdings, S.A. (NYSE:CPA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on CPA as the stock returned 21.8% during the same time frame and outperformed the market by an even larger margin.

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

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