Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of The Brink’s Company (NYSE:BCO).
The Brink’s Company (NYSE:BCO) investors should be aware of an increase in enthusiasm from smart money lately. BCO was in 27 hedge funds’ portfolios at the end of the second quarter of 2019. There were 25 hedge funds in our database with BCO positions at the end of the previous quarter. Our calculations also showed that BCO isn’t among the 30 most popular stocks among hedge funds (view the video below).
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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s analyze the key hedge fund action encompassing The Brink’s Company (NYSE:BCO).
What have hedge funds been doing with The Brink’s Company (NYSE:BCO)?
At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in BCO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Brink’s Company (NYSE:BCO) was held by P2 Capital Partners, which reported holding $161.7 million worth of stock at the end of March. It was followed by Iridian Asset Management with a $78.3 million position. Other investors bullish on the company included Brahman Capital, Park West Asset Management, and Ariel Investments.
As industrywide interest jumped, some big names have been driving this bullishness. Iridian Asset Management, managed by David Cohen and Harold Levy, assembled the largest position in The Brink’s Company (NYSE:BCO). Iridian Asset Management had $78.3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $5.7 million position during the quarter. The other funds with brand new BCO positions are Brad Farber’s Atika Capital, Noam Gottesman’s GLG Partners, and Minhua Zhang’s Weld Capital Management.
Let’s now review hedge fund activity in other stocks similar to The Brink’s Company (NYSE:BCO). We will take a look at MSC Industrial Direct Co Inc (NYSE:MSM), Lancaster Colony Corporation (NASDAQ:LANC), United States Cellular Corporation (NYSE:USM), and PNM Resources, Inc. (NYSE:PNM). This group of stocks’ market values are similar to BCO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSM | 16 | 75254 | 2 |
| LANC | 18 | 214816 | -6 |
| USM | 15 | 177104 | 1 |
| PNM | 13 | 348669 | -1 |
| Average | 15.5 | 203961 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $461 million in BCO’s case. Lancaster Colony Corporation (NASDAQ:LANC) is the most popular stock in this table. On the other hand PNM Resources, Inc. (NYSE:PNM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks The Brink’s Company (NYSE:BCO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on BCO, though not to the same extent, as the stock returned 2.3% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
