Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is BRF SA (ADR) (NYSE:BRFS) the right investment to pursue these days? Money managers are indeed actually turning less bullish. The number of long hedge fund investments were cut by 1 lately. There were 8 hedge funds in our database with BRFS positions at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as W.W. Grainger, Inc. (NYSE:GWW), Check Point Software Technologies Ltd. (NASDAQ:CHKP), and Spectra Energy Partners, LP (NYSE:SEP) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Hedge fund activity in BRF SA (ADR) (NYSE:BRFS)
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 11% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in BRFS at the beginning of this year. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in BRF Brasil Foods SA (ADR) (NYSE:BRFS), worth close to $151.1 million. The second most bullish fund manager is Daniel Gold’s QVT Financial which holds a $10.4 million position. Remaining members of the smart money with similar optimism comprise Steve Cohen’s Point72 Asset Management, D. E. Shaw’s D E Shaw and Andre F. Perold’s HighVista Strategies. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cut their entire stakes in the stock during the third quarter. It’s worth mentioning that Howard Marks’ Oaktree Capital Management cut the largest investment of the 700 funds studied by Insider Monkey, comprising an estimated $27.3 million in stock. Highbridge Capital Management, also cut its stock, about $0.2 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as BRF SA (ADR) (NYSE:BRFS) but similarly valued. These stocks are W.W. Grainger, Inc. (NYSE:GWW), Check Point Software Technologies Ltd. (NASDAQ:CHKP), Spectra Energy Partners, LP (NYSE:SEP), and Marathon Oil Corporation (NYSE:MRO). All of these stocks’ market caps resemble BRFS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GWW | 17 | 186511 | -2 |
| CHKP | 35 | 1013225 | 4 |
| SEP | 9 | 56399 | -4 |
| MRO | 22 | 213779 | -4 |
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $367 million. That figure was $172 million in BRFS’s case. Check Point Software Technologies Ltd. (NASDAQ:CHKP) is the most popular stock in this table. On the other hand Spectra Energy Partners, LP (NYSE:SEP) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks BRF SA (ADR) (NYSE:BRFS) is even less popular than SEP. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
