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Do Hedge Funds Love Banco Santander (Brasil) SA (BSBR)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Banco Santander (Brasil) SA (NYSE:BSBR).

Banco Santander (Brasil) SA (NYSE:BSBR) has experienced a decrease in hedge fund interest recently. Our calculations also showed that BSBR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Heebner of Capital Growth Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to view the key hedge fund action encompassing Banco Santander (Brasil) SA (NYSE:BSBR).

What have hedge funds been doing with Banco Santander (Brasil) SA (NYSE:BSBR)?

At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in BSBR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is BSBR A Good Stock To Buy?

Among these funds, Capital Growth Management held the most valuable stake in Banco Santander (Brasil) SA (NYSE:BSBR), which was worth $37.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $30.2 million worth of shares. Arrowstreet Capital, Millennium Management, and GLG Partners 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 Capital Growth Management allocated the biggest weight to Banco Santander (Brasil) SA (NYSE:BSBR), around 3.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to BSBR.

Judging by the fact that Banco Santander (Brasil) SA (NYSE:BSBR) has witnessed bearish sentiment from hedge fund managers, we can see that there is a sect of money managers who were dropping their entire stakes heading into Q4. At the top of the heap, Joseph Samuels’s Islet Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $2.5 million in stock. Thomas Bailard’s fund, Bailard Inc, also said goodbye to its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Banco Santander (Brasil) SA (NYSE:BSBR). These stocks are Moody’s Corporation (NYSE:MCO), American International Group Inc (NYSE:AIG), Exelon Corporation (NYSE:EXC), and Pinduoduo Inc. (NASDAQ:PDD). This group of stocks’ market caps resemble BSBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCO 49 9218123 -6
AIG 52 2870459 -1
EXC 36 1822287 -2
PDD 32 1682011 1
Average 42.25 3898220 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $3898 million. That figure was $91 million in BSBR’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Pinduoduo Inc. (NASDAQ:PDD) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Banco Santander (Brasil) SA (NYSE:BSBR) is even less popular than PDD. Hedge funds dodged a bullet by taking a bearish stance towards BSBR. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately BSBR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BSBR investors were disappointed as the stock returned -43.9% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.

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

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