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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Banco de Chile (NYSE:BCH) makes for a good investment right now.
Banco de Chile (NYSE:BCH) has experienced an increase in activity from the world’s largest hedge funds recently. BCH was in 10 hedge funds’ portfolios at the end of December. There were 4 hedge funds in our database with BCH positions at the end of the previous quarter. Our calculations also showed that BCH 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.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
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. Now let’s take a look at the recent hedge fund action regarding Banco de Chile (NYSE:BCH).
What does smart money think about Banco de Chile (NYSE:BCH)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 150% from the third quarter of 2019. On the other hand, there were a total of 4 hedge funds with a bullish position in BCH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Banco de Chile (NYSE:BCH), with a stake worth $42.1 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $4.5 million. Millennium Management, D E Shaw, and Citadel Investment Group 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 Caxton Associates LP allocated the biggest weight to Banco de Chile (NYSE:BCH), around 0.04% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to BCH.
Consequently, some big names have been driving this bullishness. D E Shaw, managed by D. E. Shaw, created the biggest position in Banco de Chile (NYSE:BCH). D E Shaw had $0.7 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates LP, Matthew Tewksbury’s Stevens Capital Management, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks similar to Banco de Chile (NYSE:BCH). We will take a look at Packaging Corporation Of America (NYSE:PKG), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Insulet Corporation (NASDAQ:PODD), and Regency Centers Corp (NYSE:REG). This group of stocks’ market values are closest to BCH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKG | 18 | 113206 | 1 |
| CHRW | 24 | 414912 | -2 |
| PODD | 34 | 731520 | -4 |
| REG | 16 | 139028 | -1 |
| Average | 23 | 349667 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $54 million in BCH’s case. Insulet Corporation (NASDAQ:PODD) is the most popular stock in this table. On the other hand Regency Centers Corp (NYSE:REG) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Banco de Chile (NYSE:BCH) is even less popular than REG. 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 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 BCH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BCH investors were disappointed as the stock returned -29.5% 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.
