We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 British American Tobacco plc (NYSE:BTI).
Is British American Tobacco plc (NYSE:BTI) a buy right now? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 1 lately. Our calculations also showed that BTI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BTI was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with BTI holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are perceived as underperforming, outdated investment vehicles of years past. While there are more than 8000 funds trading at the moment, We look at the top tier of this group, around 750 funds. Most estimates calculate that this group of people oversee the lion’s share of the hedge fund industry’s total asset base, and by shadowing their highest performing picks, Insider Monkey has determined numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Lee Ainslie of Maverick Capital
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action surrounding British American Tobacco plc (NYSE:BTI).
What have hedge funds been doing with British American Tobacco plc (NYSE:BTI)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BTI over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Orbis Investment Management, managed by William B. Gray, holds the number one position in British American Tobacco plc (NYSE:BTI). Orbis Investment Management has a $265.7 million position in the stock, comprising 2% of its 13F portfolio. The second largest stake is held by Lee Ainslie of Maverick Capital, with a $90 million position; 1.3% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism encompass Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to British American Tobacco plc (NYSE:BTI), around 1.96% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, earmarking 1.32 percent of its 13F equity portfolio to BTI.
Since British American Tobacco plc (NYSE:BTI) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there were a few hedge funds who were dropping their entire stakes in the third quarter. Intriguingly, David E. Shaw’s D E Shaw sold off the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $7.9 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to British American Tobacco plc (NYSE:BTI). We will take a look at Booking Holdings Inc. (NASDAQ:BKNG), Bristol Myers Squibb Company (NYSE:BMY), CVS Caremark Corporation (NYSE:CVS), and Itau Unibanco Holding SA (NYSE:ITUB). This group of stocks’ market valuations match BTI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BKNG | 78 | 5427265 | 6 |
| BMY | 56 | 3842079 | -9 |
| CVS | 47 | 924996 | -8 |
| ITUB | 17 | 1060568 | -1 |
| Average | 49.5 | 2813727 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.5 hedge funds with bullish positions and the average amount invested in these stocks was $2814 million. That figure was $374 million in BTI’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Itau Unibanco Holding SA (NYSE:ITUB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks British American Tobacco plc (NYSE:BTI) is even less popular than ITUB. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on BTI, though not to the same extent, as the stock returned 9.4% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
