Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Banco de Chile (NYSE:BCH).
Is Banco de Chile (NYSE:BCH) a buy here? Prominent investors are in an optimistic mood. The number of bullish hedge fund positions went up by 2 lately. Our calculations also showed that BCH isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the new hedge fund action regarding Banco de Chile (NYSE:BCH).
How are hedge funds trading Banco de Chile (NYSE:BCH)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in BCH over the last 16 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Banco de Chile (NYSE:BCH), with a stake worth $62.4 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $11.1 million. ExodusPoint Capital, D E Shaw, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, some big names have jumped into Banco de Chile (NYSE:BCH) headfirst. ExodusPoint Capital, managed by Michael Gelband, assembled the most valuable position in Banco de Chile (NYSE:BCH). ExodusPoint Capital had $4.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.5 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Banco de Chile (NYSE:BCH) but similarly valued. These stocks are American Electric Power Company, Inc. (NYSE:AEP), Micron Technology, Inc. (NASDAQ:MU), Phillips 66 (NYSE:PSX), and Equinix Inc (NASDAQ:EQIX). This group of stocks’ market caps match BCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEP | 27 | 1483356 | -8 |
| MU | 62 | 3048109 | 1 |
| PSX | 39 | 1283214 | -4 |
| EQIX | 38 | 1709515 | 0 |
| Average | 41.5 | 1881049 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $1881 million. That figure was $79 million in BCH’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand American Electric Power Company, Inc. (NYSE:AEP) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Banco de Chile (NYSE:BCH) is even less popular than AEP. Hedge funds dodged a bullet by taking a bearish stance towards BCH. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BCH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BCH investors were disappointed as the stock returned -5.4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
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.
