We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Brookfield Business Partners L.P. (NYSE:BBU) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Brookfield Business Partners L.P. (NYSE:BBU) was in 4 hedge funds’ portfolios at the end of the fourth quarter of 2019. BBU investors should be aware of a decrease in hedge fund interest of late. There were 6 hedge funds in our database with BBU holdings at the end of the previous quarter. Our calculations also showed that BBU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the recent hedge fund action regarding Brookfield Business Partners L.P. (NYSE:BBU).
How are hedge funds trading Brookfield Business Partners L.P. (NYSE:BBU)?
Heading into the first quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BBU over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the largest position in Brookfield Business Partners L.P. (NYSE:BBU). Renaissance Technologies has a $8.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain Matthew Hulsizer’s PEAK6 Capital Management, Murray Stahl’s Horizon Asset Management and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Brookfield Business Partners L.P. (NYSE:BBU), around 0.01% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to BBU.
Because Brookfield Business Partners L.P. (NYSE:BBU) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, John Thiessen’s Vertex One Asset Management dropped the largest stake of the 750 funds tracked by Insider Monkey, valued at close to $3.2 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Brookfield Business Partners L.P. (NYSE:BBU). These stocks are SmileDirectClub, Inc. (NASDAQ:SDC), Cloudera, Inc. (NYSE:CLDR), Hutchison China MediTech Limited (NASDAQ:HCM), and Boyd Gaming Corporation (NYSE:BYD). This group of stocks’ market valuations resemble BBU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SDC | 20 | 139860 | -9 |
| CLDR | 22 | 809760 | -5 |
| HCM | 7 | 20419 | -5 |
| BYD | 30 | 216098 | 3 |
| Average | 19.75 | 296534 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $10 million in BBU’s case. Boyd Gaming Corporation (NYSE:BYD) 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 7 bullish hedge fund positions. Compared to these stocks Brookfield Business Partners L.P. (NYSE:BBU) is even less popular than HCM. Hedge funds dodged a bullet by taking a bearish stance towards BBU. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately BBU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BBU investors were disappointed as the stock returned -38.8% during the same time period and underperformed 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 most of these stocks already outperformed the market so far in 2020.
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.
