Here is What Hedge Funds Think About Brown-Forman Corporation (BF)

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 latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Brown-Forman Corporation (NYSE:BF) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Brown-Forman Corporation (NYSE:BF) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that BF 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.

In the financial world there are tons of gauges shareholders have at their disposal to value their stock investments. A pair of the less utilized gauges are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can outpace the broader indices by a healthy margin (see the details here).

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action surrounding Brown-Forman Corporation (NYSE:BF).

What does smart money think about Brown-Forman Corporation (NYSE:BF)?

Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BF over the last 18 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Gardner Russo & Gardner was the largest shareholder of Brown-Forman Corporation (NYSE:BF), with a stake worth $234.7 million reported as of the end of September. Trailing Gardner Russo & Gardner was Gardner Russo & Gardner, which amassed a stake valued at $116.4 million. Markel Gayner Asset Management, GAMCO Investors, and AQR Capital 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 Gardner Russo & Gardner allocated the biggest weight to Brown-Forman Corporation (NYSE:BF), around 1.8% of its 13F portfolio. Gardner Russo & Gardner is also relatively very bullish on the stock, setting aside 0.89 percent of its 13F equity portfolio to BF.

As one would reasonably expect, key hedge funds have jumped into Brown-Forman Corporation (NYSE:BF) headfirst. Ancora Advisors, managed by Frederick DiSanto, created the most outsized position in Brown-Forman Corporation (NYSE:BF). Ancora Advisors had $1.5 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also initiated a $1.1 million position during the quarter. The following funds were also among the new BF investors: Richard Chilton’s Chilton Investment Company, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Frederick DiSanto’s Ancora Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Brown-Forman Corporation (NYSE:BF) but similarly valued. These stocks are Nokia Corporation (NYSE:NOK), Skyworks Solutions Inc (NASDAQ:SWKS), CDW Corporation (NASDAQ:CDW), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks’ market values are similar to BF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOK 16 227900 -8
SWKS 43 1178499 17
CDW 30 1085374 0
CBRE 30 1499210 -1
Average 29.75 997746 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $998 million. That figure was $610 million in BF’s case. Skyworks Solutions Inc (NASDAQ:SWKS) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 16 bullish hedge fund positions. Brown-Forman Corporation (NYSE:BF) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately BF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BF investors were disappointed as the stock returned -29% 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 in Q1.

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