We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Banco de Chile (NYSE:BCH) a buy here? The smart money is getting less optimistic. The number of bullish hedge fund bets retreated by 2 in recent months. Our calculations also showed that BCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the recent hedge fund action regarding Banco de Chile (NYSE:BCH).
How are hedge funds trading Banco de Chile (NYSE:BCH)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the second quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in BCH a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Banco de Chile (NYSE:BCH), worth close to $57.7 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $7.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Banco de Chile (NYSE:BCH), around 0.05% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to BCH.
Seeing as Banco de Chile (NYSE:BCH) has experienced falling interest from the smart money, we can see that there was a specific group of hedge funds who sold off their full holdings in the third quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dropped the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $4.3 million in stock, and David E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Banco de Chile (NYSE:BCH) but similarly valued. We will take a look at Take-Two Interactive Software, Inc. (NASDAQ:TTWO), Live Nation Entertainment, Inc. (NYSE:LYV), Campbell Soup Company (NYSE:CPB), and Nomura Holdings, Inc. (NYSE:NMR). All of these stocks’ market caps are closest to BCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TTWO | 57 | 1596551 | -3 |
| LYV | 40 | 1097828 | 1 |
| CPB | 31 | 972740 | 5 |
| NMR | 5 | 24828 | -2 |
| Average | 33.25 | 922987 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $923 million. That figure was $66 million in BCH’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Banco de Chile (NYSE:BCH) is even less popular than NMR. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -27.3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
