We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 BRF Brasil Foods SA (NYSE:BRFS).
BRF Brasil Foods SA (NYSE:BRFS) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that BRFS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Howard Marks of Oaktree Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the key hedge fund action surrounding BRF Brasil Foods SA (NYSE:BRFS).
How have hedgies been trading BRF Brasil Foods SA (NYSE:BRFS)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BRFS over the last 17 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Oaktree Capital Management, managed by Howard Marks, holds the most valuable position in BRF Brasil Foods SA (NYSE:BRFS). Oaktree Capital Management has a $49.9 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is John Burbank of Passport Capital, with a $27.5 million position; the fund has 42.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Kerr Neilson’s Platinum Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Daniel Gold’s QVT Financial. In terms of the portfolio weights assigned to each position Passport Capital allocated the biggest weight to BRF Brasil Foods SA (NYSE:BRFS), around 42.25% of its 13F portfolio. QVT Financial is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to BRFS.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Passport Capital, managed by John Burbank, assembled the largest position in BRF Brasil Foods SA (NYSE:BRFS). Passport Capital had $27.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Mike Vranos’s Ellington, and Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BRF Brasil Foods SA (NYSE:BRFS) but similarly valued. These stocks are Bio-Techne Corporation (NASDAQ:TECH), Peloton Interactive, Inc. (NASDAQ:PTON), BeiGene, Ltd. (NASDAQ:BGNE), and Genpact Limited (NYSE:G). This group of stocks’ market valuations resemble BRFS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TECH | 19 | 317814 | -5 |
| PTON | 27 | 450294 | 27 |
| BGNE | 9 | 2186184 | -3 |
| G | 35 | 862399 | 9 |
| Average | 22.5 | 954173 | 7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $954 million. That figure was $116 million in BRFS’s case. Genpact Limited (NYSE:G) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 9 bullish hedge fund positions. BRF Brasil Foods SA (NYSE:BRFS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BRFS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BRFS investors were disappointed as the stock returned -6.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
