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. With this in mind let’s see whether Brookfield Infrastructure Partners L.P. (NYSE:BIP) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Brookfield Infrastructure Partners L.P. (NYSE:BIP) has experienced an increase in support from the world’s most elite money managers lately. BIP was in 11 hedge funds’ portfolios at the end of December. There were 8 hedge funds in our database with BIP holdings at the end of the previous quarter. Our calculations also showed that BIP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 S&P 500 ETFs by more than 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. 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.
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 gander at the fresh hedge fund action regarding Brookfield Infrastructure Partners L.P. (NYSE:BIP).
How are hedge funds trading Brookfield Infrastructure Partners L.P. (NYSE:BIP)?
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the third quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in BIP a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in Brookfield Infrastructure Partners L.P. (NYSE:BIP), which was worth $31.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.8 million worth of shares. Citadel Investment Group, Driehaus Capital, and Horizon Asset Management 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 Lucas Capital Management allocated the biggest weight to Brookfield Infrastructure Partners L.P. (NYSE:BIP), around 3.06% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, earmarking 0.39 percent of its 13F equity portfolio to BIP.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Renaissance Technologies, managed by the most valuable position in Brookfield Infrastructure Partners L.P. (NYSE:BIP). Renaissance Technologies had $10.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.4 million position during the quarter. The only other fund with a brand new BIP position is Frederick DiSanto’s Ancora Advisors.
Let’s go over hedge fund activity in other stocks similar to Brookfield Infrastructure Partners L.P. (NYSE:BIP). We will take a look at RingCentral Inc (NYSE:RNG), Genmab A/S (NASDAQ:GMAB), Ulta Beauty, Inc. (NASDAQ:ULTA), and Hasbro, Inc. (NASDAQ:HAS). This group of stocks’ market caps are closest to BIP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RNG | 62 | 2456273 | 10 |
| GMAB | 12 | 107919 | 1 |
| ULTA | 41 | 1245257 | 0 |
| HAS | 36 | 523095 | 4 |
| Average | 37.75 | 1083136 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1083 million. That figure was $59 million in BIP’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Brookfield Infrastructure Partners L.P. (NYSE:BIP) is even less popular than GMAB. Hedge funds dodged a bullet by taking a bearish stance towards BIP. 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 BIP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BIP investors were disappointed as the stock returned -27.2% 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
