Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. 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 Brinker International, Inc. (NYSE:EAT).
Brinker International, Inc. (NYSE:EAT) investors should be aware of an increase in hedge fund sentiment recently. EAT was in 29 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with EAT holdings at the end of the previous quarter. Our calculations also showed that eat isn’t among the 30 most popular stocks among hedge funds.
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 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 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.
Cliff Asness of AQR Capital Management
We’re going to analyze the key hedge fund action surrounding Brinker International, Inc. (NYSE:EAT).
How have hedgies been trading Brinker International, Inc. (NYSE:EAT)?
Heading into the second quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EAT over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in Brinker International, Inc. (NYSE:EAT), worth close to $53.5 million, amounting to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Gregg Moskowitz of Interval Partners, with a $35.5 million position; 1.4% of its 13F portfolio is allocated to the stock. Some other peers that are bullish include Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group.
As aggregate interest increased, specific money managers were breaking ground themselves. Interval Partners, managed by Gregg Moskowitz, initiated the largest position in Brinker International, Inc. (NYSE:EAT). Interval Partners had $35.5 million invested in the company at the end of the quarter. John Lykouretzos’s Hoplite Capital Management also made a $12.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Steven Boyd’s Armistice Capital, Sara Nainzadeh’s Centenus Global Management, and Frederick DiSanto’s Ancora Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brinker International, Inc. (NYSE:EAT) but similarly valued. These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Hope Bancorp, Inc. (NASDAQ:HOPE), and Nexa Resources S.A. (NYSE:NEXA). This group of stocks’ market values match EAT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WABC | 6 | 10495 | 1 |
| PPBI | 11 | 87156 | 2 |
| HOPE | 14 | 71200 | -3 |
| NEXA | 11 | 18770 | 1 |
| Average | 10.5 | 46905 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $253 million in EAT’s case. Hope Bancorp, Inc. (NASDAQ:HOPE) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Brinker International, Inc. (NYSE:EAT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EAT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EAT were disappointed as the stock returned -12.8% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
