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Hedge Funds Were Dumping BHP Billiton Limited (BHP) Before Coronavirus

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. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards BHP Group (NYSE:BHP).

BHP Group (NYSE:BHP) was in 20 hedge funds’ portfolios at the end of December. BHP shareholders have witnessed a decrease in hedge fund sentiment recently. There were 24 hedge funds in our database with BHP positions at the end of the previous quarter. Our calculations also showed that BHP 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Keeping this in mind let’s view the key hedge fund action regarding BHP Group (NYSE:BHP).

How are hedge funds trading BHP Group (NYSE:BHP)?

At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in BHP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the number one position in BHP Group (NYSE:BHP), worth close to $400.2 million, amounting to 0.4% of its total 13F portfolio. Coming in second is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $354.1 million position; 0.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions encompass Simon Sadler’s Segantii Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to BHP Group (NYSE:BHP), around 3.9% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, setting aside 3.12 percent of its 13F equity portfolio to BHP.

Due to the fact that BHP Group (NYSE:BHP) has experienced declining sentiment from the smart money, it’s safe to say that there were a few hedge funds who sold off their positions entirely by the end of the third quarter. Interestingly, Michael Hintze’s CQS Cayman LP said goodbye to the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $5.3 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also sold off its stock, about $1.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to BHP Group (NYSE:BHP). We will take a look at Novo Nordisk A/S (NYSE:NVO), Accenture Plc (NYSE:ACN), Philip Morris International Inc. (NYSE:PM), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market caps match BHP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVO 23 2935902 2
ACN 41 1208829 -4
PM 57 3240766 -3
ABBV 71 5288422 3
Average 48 3168480 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 48 hedge funds with bullish positions and the average amount invested in these stocks was $3168 million. That figure was $886 million in BHP’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks BHP Group (NYSE:BHP) is even less popular than NVO. Hedge funds dodged a bullet by taking a bearish stance towards BHP. 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 BHP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BHP investors were disappointed as the stock returned -33.3% 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.

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