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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Booz Allen Hamilton Holding Corporation (NYSE:BAH) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Booz Allen Hamilton Holding Corporation (NYSE:BAH) the right investment to pursue these days? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets shrunk by 1 recently. Our calculations also showed that BAH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BAH was in 34 hedge funds’ portfolios at the end of December. There were 35 hedge funds in our database with BAH holdings at the end of the previous quarter.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
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. Keeping this in mind let’s review the fresh hedge fund action regarding Booz Allen Hamilton Holding Corporation (NYSE:BAH).
How have hedgies been trading Booz Allen Hamilton Holding Corporation (NYSE:BAH)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in BAH 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Booz Allen Hamilton Holding Corporation (NYSE:BAH). AQR Capital Management has a $83.1 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management’s heels is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $70.4 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Renaissance Technologies, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to Booz Allen Hamilton Holding Corporation (NYSE:BAH), around 2.16% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, setting aside 0.51 percent of its 13F equity portfolio to BAH.
Due to the fact that Booz Allen Hamilton Holding Corporation (NYSE:BAH) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that elected to cut their full holdings heading into Q4. At the top of the heap, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dropped the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $5.9 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund said goodbye to about $3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Booz Allen Hamilton Holding Corporation (NYSE:BAH) but similarly valued. We will take a look at Devon Energy Corporation (NYSE:DVN), RPM International Inc. (NYSE:RPM), CPFL Energia S.A. (NYSE:CPL), and Neurocrine Biosciences, Inc. (NASDAQ:NBIX). This group of stocks’ market valuations resemble BAH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DVN | 54 | 914072 | 12 |
| RPM | 31 | 301067 | -3 |
| CPL | 4 | 15007 | 1 |
| NBIX | 42 | 1229214 | -3 |
| Average | 32.75 | 614840 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $615 million. That figure was $401 million in BAH’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 4 bullish hedge fund positions. Booz Allen Hamilton Holding Corporation (NYSE:BAH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds 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 still beat the market by 3.2 percentage points. Hedge funds were also right about betting on BAH as the stock returned -9.9% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
