Founded in 2001 by John Horseman, Horseman Capital Management is currently managing approximately 2.7 billion worth of assets. Branded “the world’s most bearish hedge fund” by Zerohedge, Horseman Capital Management had net negative exposure of 87% at the end of July. Although the fund ended the month down by 2.68%, it is still up by 3.13% for the year. During the second quarter, the fund’s management sought to overhaul its long portfolio, betting on energy, retail and banking companies to generate profits.
A number of the new positions are in Brazilian companies that are also listed in the U.S., as investors are growing increasingly optimistic about a potential recovery given all of the recent political developments and the exposure that the country received from the Rio Olympics. Like many other hedge funds, Horseman Capital is also betting on gold heading forward, having established fresh positions in gold mining companies and gold-tracking ETF’s. In this article, we’ll take a look at the fund’s top-5 equity bets as reported in its latest 13F filing.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
Betting Big On Brazilian Banks
First up is Banco Bradesco SA (ADR) (NYSE:BBD), a Brazilian banking company. During the second quarter, Horseman Capital Management acquired 4.07 million shares worth $31.8 million at the end of June. Not many of the hedge funds followed by Insider Monkey are interested in Banco Bradesco SA (ADR) (NYSE:BBD), with only ten of them having reported a stake in the company as of the end of the quarter. Cliff Asness’ AQR Capital Management was one of the, holding 12.5 million shares valued at $97.5 million.
Itau Unibanco Holding SA (ADR) (NYSE:ITUB) is another Brazilian banking company that the fund’s management is bullish on. By the end of the quarter, Horseman Capital had amassed exactly 4.00 million shares, a position valued at $37.7 million. Hedge fund interest in Itau Unibanco Holding SA (ADR) (NYSE:ITUB) picked up during the second quarter, as the number of long positions in the stock held by hedgies in our system rose to 22 at the end of June from 15 registered three months earlier. John Griffin‘s Blue Ridge Capital also disclosed a fresh position in the latest 13F filing period, having acquired 3.71 million shares worth approximately $35.1 million.
As Brazil is grappling with one of the worst recessions in recent history, Brazilian banks have been under immense pressure. The 90-day delinquency rate was at 5.6% at the end of June, near record levels, while provisions for the banking industry reached 6.3% of total loans. And with borrowers reluctant to contract credits at the current levels, banks were forced to increase fees to counteract the decline in revenue and profits. At the end of July, Banco Bradesco SA (ADR) (NYSE:BBD) posted second quarter profit of $1.18 billion or $0.21 per share, in-line with analysts’ estimates. The company also posted $11.03 billion in revenue. Itau Unibanco Holding SA (ADR) (NYSE:ITUB) reported $9.03 billion in revenue and a profit of $0.29 per share, topping analysts’ estimates of $0.24 per share.
We’ll run through three more of Horseman’s favorite stocks on the next page.