5 Stocks That “The World’s Most Bearish Hedge Fund” Actually Likes

Founded in 2001 by John Horseman, Horseman Capital Management is currently managing approximately 2.7 billion worth of assets. Branded “the world’s most bearish hedge fund” by Zerohedge, Horseman Capital Management had net negative exposure of 87% at the end of July. Although the fund ended the month down by 2.68%, it is still up by 3.13% for the year. During the second quarter, the fund’s management sought to overhaul its long portfolio, betting on energy, retail and banking companies to generate profits.

A number of the new positions are in Brazilian companies that are also listed in the U.S., as investors are growing increasingly optimistic about a potential recovery given all of the recent political developments and the exposure that the country received from the Rio Olympics. Like many other hedge funds, Horseman Capital is also betting on gold heading forward, having established fresh positions in gold mining companies and gold-tracking ETF’s. In this article, we’ll take a look at the fund’s top-5 equity bets as reported in its latest 13F filing.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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Betting Big On Brazilian Banks

First up is Banco Bradesco SA (ADR) (NYSE:BBD), a Brazilian banking company. During the second quarter, Horseman Capital Management acquired 4.07 million shares worth $31.8 million at the end of June. Not many of the hedge funds followed by Insider Monkey are interested in Banco Bradesco SA (ADR) (NYSE:BBD), with only ten of them having reported a stake in the company as of the end of the quarter. Cliff Asness’ AQR Capital Management was one of the, holding 12.5 million shares valued at $97.5 million.

Itau Unibanco Holding SA (ADR) (NYSE:ITUB) is another Brazilian banking company that the fund’s management is bullish on. By the end of the quarter, Horseman Capital had amassed exactly 4.00 million shares, a position valued at $37.7 million. Hedge fund interest in Itau Unibanco Holding SA (ADR) (NYSE:ITUB) picked up during the second quarter, as the number of long positions in the stock held by hedgies in our system rose to 22 at the end of June from 15 registered three months earlier. John Griffin‘s Blue Ridge Capital also disclosed a fresh position in the latest 13F filing period, having acquired 3.71 million shares worth approximately $35.1 million.

As Brazil is grappling with one of the worst recessions in recent history, Brazilian banks have been under immense pressure. The 90-day delinquency rate was at 5.6% at the end of June, near record levels, while provisions for the banking industry reached 6.3% of total loans. And with borrowers reluctant to contract credits at the current levels, banks were forced to increase fees to counteract the decline in revenue and profits. At the end of July, Banco Bradesco SA (ADR) (NYSE:BBD) posted second quarter profit of $1.18 billion or $0.21 per share, in-line with analysts’ estimates. The company also posted $11.03 billion in revenue. Itau Unibanco Holding SA (ADR) (NYSE:ITUB) reported $9.03 billion in revenue and a profit of $0.29 per share, topping analysts’ estimates of $0.24 per share.

We’ll run through three more of Horseman’s favorite stocks on the next page.

Boosting Bet On Discount Retailer

John Horseman and his team also decided to step up their interest in Costco Wholesale Corporation (NASDAQ:COST), having boosted their fund’s holding by 22% to 279,400 shares worth $43.8 million at the end of June. The second-largest retailer in the U.S., Costco Wholesale Corporation (NASDAQ:COST) has a market cap of $74 billion and currently pays an annual dividend of $1.80, providing investors with a 1.07% annual yield. Although the dividend is rather small compared to those of its rivals, the company is known to make special one-time payments to investors, having returned approximately $7 billion to shareholder over the last three years. And with the current double-digit growth rate of the dividend expected to continue, the stock should be closely watched by investors hunting for steady dividend-paying stocks. The popularity of Costco Wholesale Corporation (NASDAQ:COST) among the funds tracked by Insider Monkey cooled down during the second quarter, with the number of funds invested in it having dropped to 39, down from 43 at the end of March. Warren Buffett is also keeping tabs on this stock, as Berkshire Hathaway continues to hold 4.33 million shares worth $680 million at the end of June.

TJX Companies Is Hot Among Hedge Funds

Horseman Capital sees great potential in TJX Companies Inc (NYSE:TJX), a fashion retailer with a large network of stores in North America and Europe. According to its latest 13F filing, the fund’s holding of the stock was increased by 5% during the second quarter and amounted to 606,900 shares worth $46.8 million at the end of June. TJX Companies Inc (NYSE:TJX) has a market cap of $52.5 billion and pays an annual dividend of $1.04 per share, which currently generates an annual yield of 1.31%. The stock is currently trading at a trailing Price-to-Earnings ratio of 23, lower than the industry average of 36 according to Yahoo! Finance data. For the second quarter, the TJX posted $7.88 billion in revenue, slightly above analysts’ expectations, and a profit of $0.84 per share, topping estimates of $0.80 per share. “We’re convinced that we are attracting new customers, driving more frequent visits to our stores, and gaining market share,” said Ernie Herrman, CEO of TJX. Hedge fund sentiment towards TJX Companies Inc (NYSE:TJX) improved considerably during the second quarter, with the number of long bets on it having risen to 49 from 37 quarter-over-quarter. Billionaire Ken Griffin also decided to increase his investment in the company, as his fund Citadel Investment Group, held 2.07 million TJX shares at the end of June, up by 7% over the quarter.

A Big Brazilian Energy Bet

Horseman Capital’s new top dog is Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), as the fund joins a host of top hedge funds betting on the recovery in the energy market. Over the course of the second quarter, the fund acquired 7.6 million shares valued at $54.4 million, making it Horseman’s largest equity position. Billionaire Ken Fisher also upped his bet on Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), as Fisher Asset Management’s holding rose by 5% to 10.8 million shares worth $70.6 million. The stock followed the trend of oil prices, having bottomed at the beginning of February and then embarking on a significant rally, and is currently up by 111% for the year. Investors’ optimism could not be deterred even by the lousy second quarter results. Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) posted a 30% decline in profits to 370 million Brazilian reais ($117.8 million) amid a decline in revenue and 1.12 billion-real impairment charge on Comperj, one of its refinery projects. The company said it plans to continue with its plans to offload $15 billion worth of assets as it looks to reduce costs and its huge debt load.

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