Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Centrais Eletricas Brasileiras SA (NYSE:EBR) 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.
Centrais Eletricas Brasileiras SA (NYSE:EBR) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. EBR was in 7 hedge funds’ portfolios at the end of December. There were 5 hedge funds in our database with EBR holdings at the end of the previous quarter. Our calculations also showed that EBR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we’re going to check out the fresh hedge fund action surrounding Centrais Eletricas Brasileiras SA (NYSE:EBR).
Hedge fund activity in Centrais Eletricas Brasileiras SA (NYSE:EBR.B)
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 40% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EBR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Centrais Eletricas Brasileiras SA (NYSE:EBR.B) was held by Renaissance Technologies, which reported holding $9.1 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $7.6 million position. Other investors bullish on the company included Millennium Management, AQR Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Centrais Eletricas Brasileiras SA (NYSE:EBR.B), around 0.06% of its 13F portfolio. Ellington is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to EBR.
As industrywide interest jumped, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, created the most valuable position in Centrais Eletricas Brasileiras SA (NYSE:EBR.B). Millennium Management had $2.2 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.2 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Centrais Eletricas Brasileiras SA (NYSE:EBR.B) but similarly valued. These stocks are DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Lamb Weston Holdings, Inc. (NYSE:LW), Universal Health Services, Inc. (NYSE:UHS), and American Airlines Group Inc (NASDAQ:AAL). This group of stocks’ market caps are closest to EBR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XRAY | 28 | 1468190 | -2 |
| LW | 32 | 381958 | -3 |
| UHS | 31 | 483243 | 3 |
| AAL | 41 | 2005005 | -2 |
| Average | 33 | 1084599 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1085 million. That figure was $22 million in EBR’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Centrais Eletricas Brasileiras SA (NYSE:EBR.B) is even less popular than XRAY. Hedge funds dodged a bullet by taking a bearish stance towards EBR. 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 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately EBR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EBR investors were disappointed as the stock returned -47.6% 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 Q1.
Disclosure: None. This article was originally published at Insider Monkey.
