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Hedge Funds Aren’t Done Buying Brookfield Asset Management Inc. (BAM)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 fourth 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 4 years and analyze what the smart money thinks of Brookfield Asset Management Inc. (NYSE:BAM) based on that data.

Is Brookfield Asset Management Inc. (NYSE:BAM) ready to rally soon? The smart money is getting more optimistic. The number of bullish hedge fund positions advanced by 2 in recent months. Our calculations also showed that BAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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’ 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 41 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.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s check out the new hedge fund action regarding Brookfield Asset Management Inc. (NYSE:BAM).

What have hedge funds been doing with Brookfield Asset Management Inc. (NYSE:BAM)?

At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BAM over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Brookfield Asset Management Inc. (NYSE:BAM) was held by Akre Capital Management, which reported holding $361.3 million worth of stock at the end of September. It was followed by Markel Gayner Asset Management with a $334.9 million position. Other investors bullish on the company included Select Equity Group, Citadel Investment Group, and Horizon Asset Management. In terms of the portfolio weights assigned to each position Greenlea Lane Capital allocated the biggest weight to Brookfield Asset Management Inc. (NYSE:BAM), around 19.9% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, designating 6.19 percent of its 13F equity portfolio to BAM.

As aggregate interest increased, some big names were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in Brookfield Asset Management Inc. (NYSE:BAM). Two Sigma Advisors had $6.5 million invested in the company at the end of the quarter. Pasco Alfaro / Richard Tumure’s Miura Global Management also made a $6.4 million investment in the stock during the quarter. The other funds with brand new BAM positions are Israel Englander’s Millennium Management, Jay Genzer’s Thames Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Asset Management Inc. (NYSE:BAM) but similarly valued. These stocks are Micron Technology, Inc. (NASDAQ:MU), Westpac Banking Corporation (NYSE:WBK), Crown Castle International Corp. (NYSE:CCI), and Colgate-Palmolive Company (NYSE:CL). This group of stocks’ market caps are closest to BAM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MU 89 4565616 17
WBK 7 49339 3
CCI 38 1723851 -3
CL 52 2086840 7
Average 46.5 2106412 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.5 hedge funds with bullish positions and the average amount invested in these stocks was $2106 million. That figure was $1282 million in BAM’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 7 bullish hedge fund positions. Brookfield Asset Management Inc. (NYSE:BAM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on BAM as the stock returned -6.6% during the same time period and outperformed the market by an even larger margin.

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

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