2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Brinker International, Inc. (NYSE:EAT) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Brinker International, Inc. (NYSE:EAT) has seen a decrease in hedge fund sentiment lately. Our calculations also showed that EAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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 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 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.
Noam Gottesman of GLG Partners
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. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Brinker International, Inc. (NYSE:EAT).
What does smart money think about Brinker International, Inc. (NYSE:EAT)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EAT over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Brinker International, Inc. (NYSE:EAT) was held by Arrowstreet Capital, which reported holding $60.6 million worth of stock at the end of September. It was followed by GLG Partners with a $30.2 million position. Other investors bullish on the company included Point72 Asset Management, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Harvest Capital Strategies allocated the biggest weight to Brinker International, Inc. (NYSE:EAT), around 4.92% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 4.36 percent of its 13F equity portfolio to EAT.
Judging by the fact that Brinker International, Inc. (NYSE:EAT) has faced bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Gregg Moskowitz’s Interval Partners dropped the largest investment of the 750 funds monitored by Insider Monkey, comprising an estimated $10.2 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also dropped its stock, about $5.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brinker International, Inc. (NYSE:EAT) but similarly valued. These stocks are ICF International Inc (NASDAQ:ICFI), MaxLinear, Inc. (NYSE:MXL), CNOOC Limited (NYSE:CEO), and PJT Partners Inc (NYSE:PJT). This group of stocks’ market valuations are closest to EAT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICFI | 10 | 31687 | -5 |
| MXL | 12 | 23578 | 5 |
| CEO | 15 | 206809 | 6 |
| PJT | 17 | 149204 | 2 |
| Average | 13.5 | 102820 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $232 million in EAT’s case. PJT Partners Inc (NYSE:PJT) is the most popular stock in this table. On the other hand ICF International Inc (NASDAQ:ICFI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Brinker International, Inc. (NYSE:EAT) is more popular among hedge funds. 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. Unfortunately EAT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EAT were disappointed as the stock returned -0.9% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
