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Hedge Funds Are Coming Back To Banco Bradesco SA (BBD)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Banco Bradesco SA (NYSE:BBD) based on that data and determine whether they were really smart about the stock.

Banco Bradesco SA (NYSE:BBD) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. BBD shareholders have witnessed an increase in hedge fund interest lately. There were 15 hedge funds in our database with BBD positions at the end of the first quarter. Our calculations also showed that BBD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to check out the key hedge fund action encompassing Banco Bradesco SA (NYSE:BBD).

How are hedge funds trading Banco Bradesco SA (NYSE:BBD)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BBD over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Banco Bradesco SA (NYSE:BBD), with a stake worth $109.1 million reported as of the end of September. Trailing Fisher Asset Management was D E Shaw, which amassed a stake valued at $29.8 million. Oaktree Capital Management, Arrowstreet Capital, and Millennium 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 Indus Capital allocated the biggest weight to Banco Bradesco SA (NYSE:BBD), around 0.86% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, dishing out 0.63 percent of its 13F equity portfolio to BBD.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Banco Bradesco SA (NYSE:BBD). Arrowstreet Capital had $21.7 million invested in the company at the end of the quarter. Renaissance Technologies also made a $9.5 million investment in the stock during the quarter. The following funds were also among the new BBD investors: David Kowitz and Sheldon Kasowitz’s Indus Capital, Noam Gottesman’s GLG Partners, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks similar to Banco Bradesco SA (NYSE:BBD). These stocks are Public Storage (NYSE:PSA), SBA Communications Corporation (NASDAQ:SBAC), Metlife Inc (NYSE:MET), Xcel Energy Inc (NASDAQ:XEL), HCA Healthcare Inc (NYSE:HCA), NXP Semiconductors NV (NASDAQ:NXPI), and DocuSign, Inc. (NASDAQ:DOCU). This group of stocks’ market values resemble BBD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSA 26 712541 -1
SBAC 57 2165651 11
MET 31 970822 -3
XEL 23 273421 -1
HCA 71 2240096 -16
NXPI 67 2214977 15
DOCU 57 2585727 10
Average 47.4 1594748 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.4 hedge funds with bullish positions and the average amount invested in these stocks was $1595 million. That figure was $236 million in BBD’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Banco Bradesco SA (NYSE:BBD) is even less popular than XEL. Our overall hedge fund sentiment score for BBD is 38. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards BBD. 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 24.8% in 2020 through the end of September but managed to beat the market by 19.3 percentage points. Unfortunately BBD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BBD investors were disappointed as the stock returned -9.7% in the third quarter 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.