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Did Hedge Funds Make The Right Call On Brighthouse Financial, Inc. (BHF)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Brighthouse Financial, Inc. (NASDAQ:BHF) and determine whether hedge funds had an edge regarding this stock.

Is Brighthouse Financial, Inc. (NASDAQ:BHF) the right pick for your portfolio? Prominent investors were becoming less hopeful. The number of bullish hedge fund bets retreated by 18 recently. Our calculations also showed that BHF 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). BHF was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 43 hedge funds in our database with BHF holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are tons of gauges stock traders employ to appraise publicly traded companies. A pair of the most underrated gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outperform their index-focused peers by a very impressive amount (see the details here).

Joe Huber - Huber Capital Management

Joe Huber of Huber Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a glance at the recent hedge fund action encompassing Brighthouse Financial, Inc. (NASDAQ:BHF).

What have hedge funds been doing with Brighthouse Financial, Inc. (NASDAQ:BHF)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -42% from the fourth quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in BHF a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BHF A Good Stock To Buy?

Among these funds, Greenlight Capital held the most valuable stake in Brighthouse Financial, Inc. (NASDAQ:BHF), which was worth $88 million at the end of the third quarter. On the second spot was Miller Value Partners which amassed $44.4 million worth of shares. Arrowstreet Capital, Lomas Capital Management, and AQR Capital Management 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 Greenlight Capital allocated the biggest weight to Brighthouse Financial, Inc. (NASDAQ:BHF), around 12.53% of its 13F portfolio. Lomas Capital Management is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to BHF.

Seeing as Brighthouse Financial, Inc. (NASDAQ:BHF) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds who were dropping their positions entirely by the end of the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $14.5 million in stock. Renaissance Technologies, also cut its stock, about $8.5 million worth. These moves are important to note, as total hedge fund interest fell by 18 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Brighthouse Financial, Inc. (NASDAQ:BHF). These stocks are Qurate Retail, Inc. (NASDAQ:QRTEA), Lexington Realty Trust (NYSE:LXP), Air Lease Corp (NYSE:AL), and Blackstone Mortgage Trust Inc (NYSE:BXMT). All of these stocks’ market caps are similar to BHF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QRTEA 32 477820 -7
LXP 10 41143 -4
AL 20 378732 -3
BXMT 19 56818 4
Average 20.25 238628 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $239 million. That figure was $373 million in BHF’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 10 bullish hedge fund positions. Brighthouse Financial, Inc. (NASDAQ:BHF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately BHF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHF were disappointed as the stock returned 15.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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