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Hedge Funds Have Never Been This Bullish On Brookfield Asset Management Inc. (BAM)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Brookfield Asset Management Inc. (NYSE:BAM).

Brookfield Asset Management Inc. (NYSE:BAM) has experienced an increase in enthusiasm from smart money recently. BAM was in 31 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with BAM positions at the end of the previous quarter. Our calculations also showed that BAM 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

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 check out the latest hedge fund action regarding Brookfield Asset Management Inc. (NYSE:BAM).

What does smart money think about Brookfield Asset Management Inc. (NYSE:BAM)?

Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 41% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BAM over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

BAM_dec2019

Among these funds, Markel Gayner Asset Management held the most valuable stake in Brookfield Asset Management Inc. (NYSE:BAM), which was worth $307 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $282.7 million worth of shares. Select Equity Group, Third Avenue Management, and Horizon Asset 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 Greenlea Lane Capital allocated the biggest weight to Brookfield Asset Management Inc. (NYSE:BAM), around 22.4% of its portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 7.59 percent of its 13F equity portfolio to BAM.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Akre Capital Management, managed by Charles Akre, created the most outsized position in Brookfield Asset Management Inc. (NYSE:BAM). Akre Capital Management had $282.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $11.6 million position during the quarter. The following funds were also among the new BAM investors: Andrew Weiss’s Weiss Asset Management, David Alexander Witkin’s Beryl Capital Management, and James Dondero’s Highland Capital Management.

Let’s go over hedge fund activity in other stocks similar to Brookfield Asset Management Inc. (NYSE:BAM). These stocks are General Dynamics Corporation (NYSE:GD), HDFC Bank Limited (NYSE:HDB), Uber Technologies, Inc. (NYSE:UBER), and Intercontinental Exchange Inc (NYSE:ICE). This group of stocks’ market valuations are similar to BAM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GD 40 7033615 0
HDB 36 2347772 9
UBER 45 3397033 -11
ICE 43 2290732 8
Average 41 3767288 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $3767 million. That figure was $1143 million in BAM’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 36 bullish hedge fund positions. Compared to these stocks Brookfield Asset Management Inc. (NYSE:BAM) is even less popular than HDB. 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 BAM, though not to the same extent, as the stock returned 10.3% 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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