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Hedge Funds Are Dumping Barnes Group Inc. (B)

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Barnes Group Inc. (NYSE:B).

Barnes Group Inc. (NYSE:B) has experienced a decrease in activity from the world’s largest hedge funds lately. B was in 13 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with B positions at the end of the previous quarter. Our calculations also showed that B isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the recent hedge fund action regarding Barnes Group Inc. (NYSE:B).

How are hedge funds trading Barnes Group Inc. (NYSE:B)?

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in B over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the most valuable position in Barnes Group Inc. (NYSE:B), worth close to $8.3 million, amounting to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by David E. Shaw, holding a $8.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain Brandon Haley’s Holocene Advisors, Minhua Zhang’s Weld Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Barnes Group Inc. (NYSE:B), around 0.26% of its 13F portfolio. Holocene Advisors is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to B.

Because Barnes Group Inc. (NYSE:B) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who sold off their full holdings in the third quarter. Intriguingly,  Renaissance Technologies sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $9.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $3.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Barnes Group Inc. (NYSE:B) but similarly valued. These stocks are Dorman Products Inc. (NASDAQ:DORM), Canada Goose Holdings Inc. (NYSE:GOOS), National General Holdings Corp (NASDAQ:NGHC), and World Fuel Services Corporation (NYSE:INT). All of these stocks’ market caps are closest to B’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DORM 13 48985 -1
GOOS 14 305816 -4
NGHC 17 224476 -1
INT 18 200195 -1
Average 15.5 194868 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $25 million in B’s case. World Fuel Services Corporation (NYSE:INT) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Barnes Group Inc. (NYSE:B) is even less popular than DORM. Hedge funds clearly dropped the ball on B as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on B as the stock returned 15.2% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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