Did Hedge Funds Drop The Ball On Brooks Automation, Inc. (BRKS)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Brooks Automation, Inc. (NASDAQ:BRKS) and determine whether hedge funds had an edge regarding this stock.

Brooks Automation, Inc. (NASDAQ:BRKS) investors should pay attention to a decrease in hedge fund sentiment of late. BRKS was in 18 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with BRKS holdings at the end of the previous quarter. Our calculations also showed that BRKS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Brooks Automation, Inc. (NASDAQ:BRKS).

Hedge fund activity in Brooks Automation, Inc. (NASDAQ:BRKS)

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BRKS over the last 18 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.

Among these funds, Fisher Asset Management held the most valuable stake in Brooks Automation, Inc. (NASDAQ:BRKS), which was worth $34.7 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $25.1 million worth of shares. Citadel Investment Group, Marshall Wace LLP, and D E Shaw 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 Voce Capital allocated the biggest weight to Brooks Automation, Inc. (NASDAQ:BRKS), around 2.45% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, earmarking 0.83 percent of its 13F equity portfolio to BRKS.

Judging by the fact that Brooks Automation, Inc. (NASDAQ:BRKS) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their positions entirely in the first quarter. Intriguingly, Paolo Mortarotti’s Tower House Partners sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $44.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Brooks Automation, Inc. (NASDAQ:BRKS). We will take a look at Mercury General Corporation (NYSE:MCY), Sabra Health Care REIT Inc (NASDAQ:SBRA), Itron, Inc. (NASDAQ:ITRI), and Quaker Chemical Corp (NYSE:KWR). This group of stocks’ market caps are similar to BRKS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $99 million in BRKS’s case. Mercury General Corporation (NYSE:MCY) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 8 bullish hedge fund positions. Brooks Automation, Inc. (NASDAQ:BRKS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on BRKS as the stock returned 50.5% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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