It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Banco Macro SA (NYSE:BMA).
Is Banco Macro SA (NYSE:BMA) going to take off soon? Investors who are in the know are taking a bullish view. The number of bullish hedge fund bets rose by 1 lately. Our calculations also showed that BMA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BMA was in 11 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with BMA holdings at the end of the previous quarter.
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Crispin Odey of Odey Asset Management Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s take a look at the new hedge fund action regarding Banco Macro SA (NYSE:BMA).
How have hedgies been trading Banco Macro SA (NYSE:BMA)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2019. By comparison, 12 hedge funds held shares or bullish call options in BMA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Odey Asset Management Group was the largest shareholder of Banco Macro SA (NYSE:BMA), with a stake worth $62.7 million reported as of the end of September. Trailing Odey Asset Management Group was Renaissance Technologies, which amassed a stake valued at $10.5 million. Arrowstreet Capital, GLG Partners, and Marathon Asset Management 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 Odey Asset Management Group allocated the biggest weight to Banco Macro SA (NYSE:BMA), around 7% of its 13F portfolio. Marathon Asset Management is also relatively very bullish on the stock, dishing out 1.31 percent of its 13F equity portfolio to BMA.
Consequently, some big names have jumped into Banco Macro SA (NYSE:BMA) headfirst. Marathon Asset Management, managed by Bruce J. Richards and Louis Hanover, established the most valuable position in Banco Macro SA (NYSE:BMA). Marathon Asset Management had $2.9 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $2.9 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Bart Baum’s Ionic Capital Management, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks similar to Banco Macro SA (NYSE:BMA). We will take a look at Meredith Corporation (NYSE:MDP), Kaman Corporation (NYSE:KAMN), Papa John’s International, Inc. (NASDAQ:PZZA), and Arcosa, Inc. (NYSE:ACA). This group of stocks’ market valuations resemble BMA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDP | 19 | 274737 | 8 |
| KAMN | 19 | 248406 | 5 |
| PZZA | 24 | 382533 | 2 |
| ACA | 27 | 234791 | 3 |
| Average | 22.25 | 285117 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $95 million in BMA’s case. Arcosa, Inc. (NYSE:ACA) is the most popular stock in this table. On the other hand Meredith Corporation (NYSE:MDP) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Banco Macro SA (NYSE:BMA) is even less popular than MDP. Hedge funds dodged a bullet by taking a bearish stance towards BMA. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BMA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BMA investors were disappointed as the stock returned -0.7% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
