Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 BHP Billiton plc (NYSE:BBL).
Is BHP Billiton plc (NYSE:BBL) the right pick for your portfolio? The best stock pickers are getting more optimistic. The number of long hedge fund positions moved up by 2 in recent months. Our calculations also showed that BBL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). BBL was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with BBL positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most stock holders, hedge funds are seen as underperforming, old financial vehicles of the past. While there are more than 8000 funds trading at the moment, Our researchers hone in on the moguls of this club, about 850 funds. These investment experts watch over the majority of the smart money’s total asset base, and by observing their finest picks, Insider Monkey has revealed numerous investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a look at the new hedge fund action surrounding BHP Billiton plc (NYSE:BBL).
What does smart money think about BHP Billiton plc (NYSE:BBL)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BBL over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in BHP Billiton plc (NYSE:BBL) was held by Arrowstreet Capital, which reported holding $337.5 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $277 million position. Other investors bullish on the company included Polaris Capital Management, Millennium Management, and Sand Grove Capital Partners. In terms of the portfolio weights assigned to each position Sand Grove Capital Partners allocated the biggest weight to BHP Billiton plc (NYSE:BBL), around 17.77% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 9.3 percent of its 13F equity portfolio to BBL.
As industrywide interest jumped, specific money managers have been driving this bullishness. Sand Grove Capital Partners, managed by Simon Davies, assembled the most valuable position in BHP Billiton plc (NYSE:BBL). Sand Grove Capital Partners had $57.3 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $0.6 million position during the quarter. The following funds were also among the new BBL investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors and Frederick DiSanto’s Ancora Advisors.
Let’s go over hedge fund activity in other stocks similar to BHP Billiton plc (NYSE:BBL). These stocks are International Business Machines Corp. (NYSE:IBM), NextEra Energy, Inc. (NYSE:NEE), GlaxoSmithKline plc (NYSE:GSK), and HDFC Bank Limited (NYSE:HDB). All of these stocks’ market caps are closest to BBL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBM | 50 | 1289370 | 5 |
| NEE | 46 | 966067 | 1 |
| GSK | 26 | 2075772 | -1 |
| HDB | 39 | 2768292 | -2 |
| Average | 40.25 | 1774875 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1775 million. That figure was $1239 million in BBL’s case. International Business Machines Corp. (NYSE:IBM) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks BHP Billiton plc (NYSE:BBL) is even less popular than GSK. Hedge funds dodged a bullet by taking a bearish stance towards BBL. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 3.1 percentage points. Unfortunately BBL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BBL investors were disappointed as the stock returned -36.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
