We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Brunswick Corporation (NYSE:BC) and determine whether hedge funds skillfully traded this stock.
Is Brunswick Corporation (NYSE:BC) a first-rate investment right now? Prominent investors were taking an optimistic view. The number of bullish hedge fund bets moved up by 12 lately. Brunswick Corporation (NYSE:BC) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that BC 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). There were 23 hedge funds in our database with BC positions at the end of the first quarter.
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.
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Brunswick Corporation (NYSE:BC).
What have hedge funds been doing with Brunswick Corporation (NYSE:BC)?
At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in BC 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the most valuable position in Brunswick Corporation (NYSE:BC). Two Sigma Advisors has a $588.4 million position in the stock, comprising 1.7% of its 13F portfolio. The second most bullish fund manager is William von Mueffling of Cantillon Capital Management, with a $266.1 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Anthony Bozza’s Lakewood Capital Management and Michael Lowenstein’s Kensico Capital. In terms of the portfolio weights assigned to each position Levin Capital Strategies allocated the biggest weight to Brunswick Corporation (NYSE:BC), around 4.7% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, designating 4.24 percent of its 13F equity portfolio to BC.
As aggregate interest increased, some big names were breaking ground themselves. Kensico Capital, managed by Michael Lowenstein, established the biggest position in Brunswick Corporation (NYSE:BC). Kensico Capital had $60.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $51.9 million investment in the stock during the quarter. The following funds were also among the new BC investors: John A. Levin’s Levin Capital Strategies, Ken Heebner’s Capital Growth Management, and John Brennan’s Sirios Capital Management.
Let’s now review hedge fund activity in other stocks similar to Brunswick Corporation (NYSE:BC). We will take a look at National Instruments Corporation (NASDAQ:NATI), CDK Global Inc (NASDAQ:CDK), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), Euronet Worldwide, Inc. (NASDAQ:EEFT), Mirati Therapeutics, Inc. (NASDAQ:MRTX), and Old Republic International Corporation (NYSE:ORI). 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|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $424 million. That figure was $1426 million in BC’s case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 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 overall hedge fund sentiment score for BC is 86. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately BC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BC were disappointed as the stock returned -2.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.