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Brookfield Asset Management (BAM): Hedge Funds Taking Some Chips Off The Table

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Brookfield Asset Management Inc. (NYSE:BAM) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Brookfield Asset Management Inc. (NYSE:BAM) has experienced a decrease in enthusiasm from smart money of late. Brookfield Asset Management Inc. (NYSE:BAM) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. Our calculations also showed that BAM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a peek at the key hedge fund action surrounding Brookfield Asset Management Inc. (NYSE:BAM).

Hedge fund activity in Brookfield Asset Management Inc. (NYSE:BAM)

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the first quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in BAM 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.

Is BAM A Good Stock To Buy?

The largest stake in Brookfield Asset Management Inc. (NYSE:BAM) was held by Akre Capital Management, which reported holding $378.4 million worth of stock at the end of September. It was followed by Markel Gayner Asset Management with a $286.3 million position. Other investors bullish on the company included Citadel Investment Group, Horizon Asset Management, and Third Avenue Management. In terms of the portfolio weights assigned to each position Greenlea Lane Capital allocated the biggest weight to Brookfield Asset Management Inc. (NYSE:BAM), around 12.13% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, dishing out 6.38 percent of its 13F equity portfolio to BAM.

Since Brookfield Asset Management Inc. (NYSE:BAM) has faced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies who were dropping their positions entirely in the second quarter. It’s worth mentioning that Robert Joseph Caruso’s Select Equity Group said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $15.5 million in stock, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors was right behind this move, as the fund sold off about $5.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 4 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Asset Management Inc. (NYSE:BAM) but similarly valued. These stocks are Moody’s Corporation (NYSE:MCO), Humana Inc (NYSE:HUM), Northrop Grumman Corporation (NYSE:NOC), Global Payments Inc (NYSE:GPN), Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), and CNOOC Limited (NYSE:CEO). All of these stocks’ market caps are similar to BAM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCO 61 10770558 11
HUM 73 4697967 3
NOC 47 990004 2
GPN 66 3311740 -1
SE 82 6358325 6
TFC 33 287639 -1
CEO 13 166646 2
Average 53.6 3797554 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.6 hedge funds with bullish positions and the average amount invested in these stocks was $3798 million. That figure was $1001 million in BAM’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Brookfield Asset Management Inc. (NYSE:BAM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BAM is 42.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately BAM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BAM investors were disappointed as the stock returned 2.9% since Q2 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.

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