Hedge Funds Misjudged Briggs & Stratton Corporation (BGG)?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Briggs & Stratton Corporation (NYSE:BGG).

Briggs & Stratton Corporation (NYSE:BGG) investors should be aware of an increase in enthusiasm from smart money lately. BGG was in 11 hedge funds’ portfolios at the end of June. There were 7 hedge funds in our database with BGG positions at the end of the previous quarter. Our calculations also showed that BGG isn’t among the 30 most popular stocks among hedge funds (see the video below).

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action encompassing Briggs & Stratton Corporation (NYSE:BGG).

How are hedge funds trading Briggs & Stratton Corporation (NYSE:BGG)?

At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 57% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BGG over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Briggs & Stratton Corporation (NYSE:BGG) was held by Millennium Management, which reported holding $10 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $4.4 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and D E Shaw.

Consequently, some big names were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the largest position in Briggs & Stratton Corporation (NYSE:BGG). Millennium Management had $10 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.6 million position during the quarter. The following funds were also among the new BGG investors: Mike Vranos’s Ellington, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s also examine hedge fund activity in other stocks similar to Briggs & Stratton Corporation (NYSE:BGG). We will take a look at MediciNova, Inc. (NASDAQ:MNOV), EVI Industries, Inc. (NYSE:EVI), CVR Partners LP (NYSE:UAN), and CNB Financial Corporation (NASDAQ:CCNE). All of these stocks’ market caps match BGG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $20 million in BGG’s case. MediciNova, Inc. (NASDAQ:MNOV) is the most popular stock in this table. On the other hand EVI Industries, Inc. (NYSE:EVI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Briggs & Stratton Corporation (NYSE:BGG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BGG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BGG were disappointed as the stock returned -40.4% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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