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Brookfield Renewable Partners L.P. (BEP): Hedge Funds Are In Wait-and-See Mode

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Brookfield Renewable Partners L.P. (NYSE:BEP).

Brookfield Renewable Partners L.P. (NYSE:BEP) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 NovoCure Limited (NASDAQ:NVCR), News Corp (NASDAQ:NWSA), and Gerdau SA (NYSE:GGB) to gather more data points. Our calculations also showed that BEP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 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 S&P 500 ETFs by 41 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 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.

Bernard Lambilliotte - Ecofin

Bernard Lambilliotte of Ecofin Ltd

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the latest hedge fund action encompassing Brookfield Renewable Partners L.P. (NYSE:BEP).

How are hedge funds trading Brookfield Renewable Partners L.P. (NYSE:BEP)?

Heading into the first quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BEP over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ecofin Ltd, managed by Bernard Lambilliotte, holds the most valuable position in Brookfield Renewable Partners L.P. (NYSE:BEP). Ecofin Ltd has a $4.3 million position in the stock, comprising 2.1% of its 13F portfolio. Coming in second is Robert Joseph Caruso of Select Equity Group, with a $3.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Ken Griffin’s Citadel Investment Group, George Zweig, and Shane Haas and Ravi Chander’s Signition LP. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Brookfield Renewable Partners L.P. (NYSE:BEP), around 2.06% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, setting aside 2.05 percent of its 13F equity portfolio to BEP.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Select Equity Group).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Renewable Partners L.P. (NYSE:BEP) but similarly valued. These stocks are NovoCure Limited (NASDAQ:NVCR), News Corp (NASDAQ:NWSA), Gerdau SA (NYSE:GGB), and Credit Acceptance Corp. (NASDAQ:CACC). This group of stocks’ market values resemble BEP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVCR 22 450885 -2
NWSA 26 511464 -7
GGB 7 165960 -2
CACC 31 948045 6
Average 21.5 519089 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $519 million. That figure was $11 million in BEP’s case. Credit Acceptance Corp. (NASDAQ:CACC) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Brookfield Renewable Partners L.P. (NYSE:BEP) is even less popular than GGB. Hedge funds clearly dropped the ball on BEP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on BEP as the stock returned -18.3% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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