Hedge Funds Cashing Out Of Petroleo Brasileiro S.A. – Petrobras (PBR)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) and determine whether hedge funds had an edge regarding this stock.

Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. PBR has experienced a decrease in hedge fund sentiment recently. There were 32 hedge funds in our database with PBR positions at the end of the first quarter. Our calculations also showed that PBR 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).

Video: 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ken Fisher of Fisher Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. With all of this in mind let’s take a look at the recent hedge fund action surrounding Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR).

What have hedge funds been doing with Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR)?

Heading into the third quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PBR over the last 20 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), which was worth $474 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $338 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Oldfield Partners 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 Contrarian Capital allocated the biggest weight to Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), around 17.05% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, dishing out 9.34 percent of its 13F equity portfolio to PBR.

Since Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) has faced falling interest from hedge fund managers, it’s safe to say that there were a few money managers who sold off their full holdings heading into Q3. At the top of the heap, Howard Marks’s Oaktree Capital Management dropped the largest stake of the 750 funds followed by Insider Monkey, valued at close to $33 million in stock. Jacob Rothschild’s fund, RIT Capital Partners, also dumped its stock, about $5.7 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). We will take a look at CSX Corporation (NASDAQ:CSX), Air Products & Chemicals, Inc. (NYSE:APD), Vale SA (NYSE:VALE), The Sherwin-Williams Company (NYSE:SHW), Autodesk, Inc. (NASDAQ:ADSK), Brookfield Asset Management Inc. (NYSE:BAM), and Moody’s Corporation (NYSE:MCO). This group of stocks’ market caps are similar to PBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSX 46 2290942 -11
APD 37 439684 -4
VALE 29 1613921 1
SHW 53 1830766 -4
ADSK 67 3014972 2
BAM 33 1001293 -4
MCO 61 10770558 11
Average 46.6 2994591 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.6 hedge funds with bullish positions and the average amount invested in these stocks was $2995 million. That figure was $1410 million in PBR’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is even less popular than VALE. Our overall hedge fund sentiment score for PBR is 26.9. 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. Hedge funds dodged a bullet by taking a bearish stance towards PBR. 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 23.8% in 2020 through September 14th but managed to beat the market by 17.6 percentage points. Unfortunately PBR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PBR investors were disappointed as the stock returned 1.1% since the end of Q2 (through 9/14) 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.