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Hedge Funds Aren’t Crazy About Banco de Chile (BCH) Anymore

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 Banco de Chile (NYSE:BCH).

Is Banco de Chile (NYSE:BCH) a bargain? The best stock pickers are taking a bearish view. The number of bullish hedge fund bets shrunk by 6 in recent months. Our calculations also showed that BCH 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). BCH was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. There were 10 hedge funds in our database with BCH positions at the end of the previous 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 44 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.

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, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action regarding Banco de Chile (NYSE:BCH).

How are hedge funds trading Banco de Chile (NYSE:BCH)?

At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -60% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in BCH a year ago. So, let’s see 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, Renaissance Technologies, holds the most valuable position in Banco de Chile (NYSE:BCH). Renaissance Technologies has a $31.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $2.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish encompass D. E. Shaw’s D E Shaw, Paul Marshall and Ian Wace’s Marshall Wace LLP and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Banco de Chile (NYSE:BCH), around 0.03% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, earmarking 0.0043 percent of its 13F equity portfolio to BCH.

Because Banco de Chile (NYSE:BCH) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes by the end of the third 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 close to $4.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $0.7 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Banco de Chile (NYSE:BCH) but similarly valued. We will take a look at Catalent Inc (NYSE:CTLT), Citizens Financial Group Inc (NYSE:CFG), Shaw Communications Inc (NYSE:SJR), and Neurocrine Biosciences, Inc. (NASDAQ:NBIX). This group of stocks’ market values are similar to BCH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTLT 27 384560 6
CFG 46 828393 4
SJR 12 152105 0
NBIX 38 1054891 -4
Average 30.75 604987 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $35 million in BCH’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Banco de Chile (NYSE:BCH) is even less popular than SJR. Hedge funds dodged a bullet by taking a bearish stance towards BCH. 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 BCH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BCH investors were disappointed as the stock returned 2.7% 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.

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