Did Hedge Funds Make The Right Call On Brunswick Corporation (BC)?

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). 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 Brunswick Corporation (NYSE:BC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Brunswick Corporation (NYSE:BC) undervalued? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions dropped by 13 recently. Our calculations also showed that BC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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 peek at the fresh hedge fund action regarding Brunswick Corporation (NYSE:BC).

How are hedge funds trading Brunswick Corporation (NYSE:BC)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in BC 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 BC A Good Stock To Buy?

More specifically, Cantillon Capital Management was the largest shareholder of Brunswick Corporation (NYSE:BC), with a stake worth $133 million reported as of the end of September. Trailing Cantillon Capital Management was Lakewood Capital Management, which amassed a stake valued at $108.3 million. Arrowstreet Capital, AQR Capital Management, and Two Sigma Advisors 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 Lakewood Capital Management allocated the biggest weight to Brunswick Corporation (NYSE:BC), around 4.95% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, dishing out 1.64 percent of its 13F equity portfolio to BC.

Due to the fact that Brunswick Corporation (NYSE:BC) has experienced a decline in interest from the smart money, it’s safe to say that there were a few hedge funds who were dropping their full holdings in the first quarter. Interestingly, Renaissance Technologies dropped the largest investment of all the hedgies followed by Insider Monkey, worth about $9.3 million in stock. Charles Lemonides’s fund, Valueworks LLC, also cut its stock, about $6.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 13 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Brunswick Corporation (NYSE:BC). We will take a look at CVB Financial Corp. (NASDAQ:CVBF), Ardagh Group S.A. (NYSE:ARD), ACI Worldwide Inc (NASDAQ:ACIW), and Novanta Inc. (NASDAQ:NOVT). This group of stocks’ market values resemble BC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVBF 8 40046 -6
ARD 8 48967 -1
ACIW 24 271686 4
NOVT 10 20986 -4
Average 12.5 95421 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $411 million in BC’s case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 8 bullish hedge fund positions. Brunswick Corporation (NYSE:BC) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on BC as the stock returned 81.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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