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Is BHP Group (BHP) Going to Burn These Hedge Funds?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

BHP Group (NYSE:BHP) investors should pay attention to a decrease in enthusiasm from smart money of late. BHP was in 15 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 19 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Fisher - FISHER ASSET MANAGEMENT

Let’s check out the recent hedge fund action surrounding BHP Group (NYSE:BHP).

How have hedgies been trading BHP Group (NYSE:BHP)?

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BHP over the last 14 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.

BHP_mar2019

The largest stake in BHP Group (NYSE:BHP) was held by Fisher Asset Management, which reported holding $312.8 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $175.1 million position. Other investors bullish on the company included Mason Capital Management, Millennium Management, and LMR Partners.

Since BHP Group (NYSE:BHP) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers who were dropping their entire stakes in the third quarter. Interestingly, Jim Simons’s Renaissance Technologies dropped the biggest stake of the 700 funds tracked by Insider Monkey, worth close to $12.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $9.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to BHP Group (NYSE:BHP). We will take a look at NIKE, Inc. (NYSE:NKE), Netflix, Inc. (NASDAQ:NFLX), PetroChina Company Limited (NYSE:PTR), and 3M Company (NYSE:MMM). This group of stocks’ market values are similar to BHP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NKE 61 1940745 15
NFLX 83 6533718 -1
PTR 14 133715 0
MMM 36 455273 2
Average 48.5 2265863 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $2266 million. That figure was $846 million in BHP’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 14 bullish hedge fund positions. BHP Group (NYSE:BHP) is not the least popular stock in this group but hedge fund interest is still below average. Hedge funds missed out investing in this stock during Q1. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Only a few hedge funds were also right about betting on BHP as the stock returned 14.9% and outperformed the market as well.

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

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