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Do Hedge Funds Love Centrais Eletricas Brasileiras S.A. – Eletrobras (EBR)?

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR).

Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that EBR 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the recent hedge fund action surrounding Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR).

What have hedge funds been doing with Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in EBR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR), with a stake worth $4.5 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.9 million. Kopernik Global Investors, Renaissance Technologies, 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 Kopernik Global Investors allocated the biggest weight to Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR), around 0.12% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to EBR.

Due to the fact that Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR) has experienced bearish sentiment from the smart money, logic holds that there exists a select few hedgies that slashed their full holdings in the first quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, worth about $2.2 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its stock, about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR). These stocks are Avantor, Inc. (NYSE:AVTR), Ceridian HCM Holding Inc. (NYSE:CDAY), Tenaris S.A. (NYSE:TS), and Cloudflare, Inc. (NYSE:NET). This group of stocks’ market valuations match EBR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVTR 29 521496 1
CDAY 24 1189081 -7
TS 15 212792 -1
NET 24 498974 2
Average 23 605586 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $606 million. That figure was $10 million in EBR’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR) is even less popular than TS. Hedge funds dodged a bullet by taking a bearish stance towards EBR. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately EBR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); EBR investors were disappointed as the stock returned 16.3% during the second quarter (through the end of May) 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 most of these stocks already outperformed the market so far in 2020.

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