Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like BHP Billiton Limited (ADR) (NYSE:BHP).
Is BHP Billiton Limited (ADR) (NYSE:BHP) an exceptional investment right now? Hedge funds are getting more bullish. The number of long hedge fund bets went up by 2 in recent months. At the end of this article we will also compare BHP to other stocks including Honda Motor Co Ltd (ADR) (NYSE:HMC), Baidu.com, Inc. (ADR) (NASDAQ:BIDU), and Monsanto Company (NYSE:MON) to get a better sense of its popularity.
Follow Bhp Group (NYSE:BHP)
Follow Bhp Group (NYSE:BHP)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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How are hedge funds trading BHP Billiton Limited (ADR) (NYSE:BHP)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 12% from the previous quarter. After a huge drop in Q4 2015, hedge fund ownership has gradually rebounded over the past 3 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Dmitry Balyasny’s Balyasny Asset Management has the most valuable position in BHP Billiton Limited (ADR) (NYSE:BHP), worth close to $67.4 million. The second most bullish fund manager is Ken Heebner of Capital Growth Management, with a $41.6 million position; the fund has 2% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions encompass Michael Hintze’s CQS Cayman LP, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Ray Dalio’s Bridgewater Associates.
Now, some big names were leading the bulls’ herd. Capital Growth Management initiated the biggest position in BHP Billiton Limited (ADR) (NYSE:BHP). LMR Partners also made a $16.7 million investment in the stock during the quarter. The following funds were also among the new BHP investors: Richard Driehaus’ Driehaus Capital, Phill Gross and Robert Atchinson’s Adage Capital Management, and Ken Griffin’s Citadel Investment Group.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as BHP Billiton Limited (ADR) (NYSE:BHP) but similarly valued. These stocks are Honda Motor Co Ltd (ADR) (NYSE:HMC), Baidu.com, Inc. (ADR) (NASDAQ:BIDU), Monsanto Company (NYSE:MON), and Stryker Corporation (NYSE:SYK). All of these stocks’ market caps resemble BHP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HMC | 11 | 150009 | 3 |
| BIDU | 57 | 4125681 | 1 |
| MON | 77 | 3675899 | -10 |
| SYK | 24 | 694322 | 2 |
As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $2.16 billion. That figure was a meager $253 million in BHP’s case. Monsanto Company (NYSE:MON) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (ADR) (NYSE:HMC) is the least popular one with only 11 bullish hedge fund positions. BHP Billiton Limited (ADR) (NYSE:BHP) 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. In this regard MON might be a better candidate to consider a long position in.
Disclosure: None
