Do Hedge Funds Love Braskem SA (BAK)?

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 (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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Braskem SA (NYSE:BAK), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Braskem SA (NYSE:BAK) was in 5 hedge funds’ portfolios at the end of the fourth quarter of 2019. BAK has experienced an increase in activity from the world’s largest hedge funds of late. There were 0 hedge funds in our database with BAK holdings at the end of the previous quarter. Our calculations also showed that BAK 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.


Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s analyze the key hedge fund action regarding Braskem SA (NYSE:BAK).

How have hedgies been trading Braskem SA (NYSE:BAK)?

At Q4’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in BAK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Contrarian Capital held the most valuable stake in Braskem SA (NYSE:BAK), which was worth $50.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.8 million worth of shares. Citadel Investment Group, AQR Capital Management, and Weld 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 Contrarian Capital allocated the biggest weight to Braskem SA (NYSE:BAK), around 6.19% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to BAK.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Contrarian Capital, managed by Jon Bauer, established the biggest position in Braskem SA (NYSE:BAK). Contrarian Capital had $50.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $1.8 million position during the quarter. The following funds were also among the new BAK investors: Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management, and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks similar to Braskem SA (NYSE:BAK). We will take a look at Cousins Properties Incorporated (NYSE:CUZ), Performance Food Group Company (NYSE:PFGC), Unum Group (NYSE:UNM), and Curtiss-Wright Corp. (NYSE:CW). This group of stocks’ market valuations resemble BAK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CUZ 12 150948 -7
PFGC 31 481738 5
UNM 30 453012 5
CW 22 405133 -1
Average 23.75 372708 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $55 million in BAK’s case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Cousins Properties Incorporated (NYSE:CUZ) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Braskem SA (NYSE:BAK) is even less popular than CUZ. Hedge funds dodged a bullet by taking a bearish stance towards BAK. 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 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately BAK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BAK investors were disappointed as the stock returned -57.9% 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 2020.
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.