Were Hedge Funds Right About Dumping BCE Inc. (BCE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of BCE Inc. (NYSE:BCE) based on that data and determine whether they were really smart about the stock.

BCE Inc. (NYSE:BCE) shareholders have witnessed a decrease in hedge fund sentiment lately. BCE was in 13 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with BCE positions at the end of the previous quarter. Our calculations also showed that BCE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 states that banned plastic bags to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the key hedge fund action encompassing BCE Inc. (NYSE:BCE).

What have hedge funds been doing with BCE Inc. (NYSE:BCE)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BCE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in BCE Inc. (NYSE:BCE), which was worth $105 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $21.3 million worth of shares. Marshall Wace LLP, GLG Partners, and Bridgewater Associates 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 Bridgewater Associates allocated the biggest weight to BCE Inc. (NYSE:BCE), around 0.21% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to BCE.

Judging by the fact that BCE Inc. (NYSE:BCE) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that elected to cut their entire stakes by the end of the first quarter. It’s worth mentioning that Peter Muller’s PDT Partners dropped the largest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $6.7 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to BCE Inc. (NYSE:BCE). We will take a look at Vodafone Group Plc (NASDAQ:VOD), ABB Ltd (NYSE:ABB), Newmont Corporation (NYSE:NEM), and Raytheon Company (NYSE:RTN). This group of stocks’ market values are closest to BCE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $932 million. That figure was $205 million in BCE’s case. Raytheon Company (NYSE:RTN) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 bullish hedge fund positions. BCE Inc. (NYSE:BCE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately BCE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BCE investors were disappointed as the stock returned 3.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.