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Hedge Funds Aren’t Crazy About Brown-Forman Corporation (BF) Anymore

Is Brown-Forman Corporation (NYSE:BF) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Brown-Forman Corporation (NYSE:BF) was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. BF has seen a decrease in activity from the world’s largest hedge funds of late. There were 28 hedge funds in our database with BF holdings at the end of the previous quarter. Our calculations also showed that BF 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.

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 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 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.

Mario Gabelli of GAMCO Investors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the new hedge fund action regarding Brown-Forman Corporation (NYSE:BF).

What does smart money think about Brown-Forman Corporation (NYSE:BF)?

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BF over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Gardner Russo & Gardner held the most valuable stake in Brown-Forman Corporation (NYSE:BF), which was worth $231.9 million at the end of the third quarter. On the second spot was Markel Gayner Asset Management which amassed $50.4 million worth of shares. GAMCO Investors, D E Shaw, 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 Gardner Russo & Gardner allocated the biggest weight to Brown-Forman Corporation (NYSE:BF), around 1.81% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, earmarking 0.76 percent of its 13F equity portfolio to BF.

Seeing as Brown-Forman Corporation (NYSE:BF) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few money managers that decided to sell off their full holdings in the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $38.6 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $32.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Brown-Forman Corporation (NYSE:BF) but similarly valued. These stocks are IQVIA Holdings, Inc. (NYSE:IQV), The Williams Companies, Inc. (NYSE:WMB), Southwest Airlines Co. (NYSE:LUV), and Electronic Arts Inc. (NASDAQ:EA). This group of stocks’ market caps resemble BF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IQV 64 4469195 -3
WMB 36 643068 2
LUV 36 3854849 3
EA 64 2089888 5
Average 50 2764250 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $2764 million. That figure was $633 million in BF’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand The Williams Companies, Inc. (NYSE:WMB) is the least popular one with only 36 bullish hedge fund positions. Compared to these stocks Brown-Forman Corporation (NYSE:BF) is even less popular than WMB. 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 BF, though not to the same extent, as the stock returned 6.8% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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