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Is British American Tobacco plc (BTI) Going to Burn These Hedge Funds?

After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards British American Tobacco plc (NYSEAMEX:BTI).

British American Tobacco plc (NYSEAMEX:BTI) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. BTI was in 15 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with BTI positions at the end of the previous quarter. Our calculations also showed that bti isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Lee Ainslie MAVERICK CAPITAL

Let’s take a peek at the key hedge fund action surrounding British American Tobacco plc (NYSEAMEX:BTI).

What have hedge funds been doing with British American Tobacco plc (NYSEAMEX:BTI)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BTI over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BTI Positions

More specifically, Maverick Capital was the largest shareholder of British American Tobacco plc (NYSEAMEX:BTI), with a stake worth $67.6 million reported as of the end of September. Trailing Maverick Capital was Marshall Wace LLP, which amassed a stake valued at $24.6 million. Citadel Investment Group, D E Shaw, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers were leading the bulls’ herd. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the most valuable position in British American Tobacco plc (NYSEAMEX:BTI). PEAK6 Capital Management had $1.4 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $0.6 million investment in the stock during the quarter. The other funds with brand new BTI positions are Dmitry Balyasny’s Balyasny Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Frederick DiSanto’s Ancora Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as British American Tobacco plc (NYSE:BTI) but similarly valued. We will take a look at QUALCOMM, Incorporated (NASDAQ:QCOM), Texas Instruments Incorporated (NASDAQ:TXN), Paypal Holdings Inc (NASDAQ:PYPL), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market values resemble BTI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QCOM 48 3172091 7
TXN 48 2380065 10
PYPL 97 4842898 11
COST 39 2833722 -1
Average 58 3307194 6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $3.31 billion. That figure was $157 million in BTI’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Costco Wholesale Corporation (NASDAQ:COST) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks British American Tobacco plc (NYSE:BTI) is even less popular than COST. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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