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 Brookfield Renewable Partners L.P. (NYSE:BEP).
Hedge fund interest in Brookfield Renewable Partners L.P. (NYSE:BEP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare BEP to other stocks including Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), and SAGE Therapeutics Inc (NASDAQ:SAGE) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Bernard Lambilliotte of Ecofin Ltd
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to view the fresh hedge fund action encompassing Brookfield Renewable Partners L.P. (NYSE:BEP).
Hedge fund activity in Brookfield Renewable Partners L.P. (NYSE:BEP)
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in BEP a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Bernard Lambilliotte’s Ecofin Ltd has the most valuable position in Brookfield Renewable Partners L.P. (NYSE:BEP), worth close to $5.8 million, comprising 2.6% of its total 13F portfolio. Coming in second is Signition LP, managed by George Zweig, Shane Haas and Ravi Chander, which holds a $0.9 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Renaissance Technologies, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Signition LP allocated the biggest weight to Brookfield Renewable Partners L.P. (NYSE:BEP), around 3.49% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, earmarking 2.64 percent of its 13F equity portfolio to BEP.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s now review hedge fund activity in other stocks similar to Brookfield Renewable Partners L.P. (NYSE:BEP). We will take a look at Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), SAGE Therapeutics Inc (NASDAQ:SAGE), and Proofpoint Inc (NASDAQ:PFPT). This group of stocks’ market values are closest to BEP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JAZZ | 25 | 837365 | 5 |
| MBT | 14 | 403283 | 6 |
| SAGE | 29 | 430454 | 4 |
| PFPT | 42 | 636538 | 6 |
| Average | 27.5 | 576910 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $8 million in BEP’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Brookfield Renewable Partners L.P. (NYSE:BEP) is even less popular than MBT. Hedge funds clearly dropped the ball on BEP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on BEP as the stock returned 17% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
