A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Brookfield Asset Management Inc. (NYSE:BAM) during the quarter.
Brookfield Asset Management Inc. (NYSE:BAM) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that bam isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to view the new hedge fund action encompassing Brookfield Asset Management Inc. (NYSE:BAM).
How have hedgies been trading Brookfield Asset Management Inc. (NYSE:BAM)?
Heading into the fourth quarter of 2018, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in BAM heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, SQ Advisors was the largest shareholder of Brookfield Asset Management Inc. (NYSE:BAM), with a stake worth $386.7 million reported as of the end of September. Trailing SQ Advisors was Markel Gayner Asset Management, which amassed a stake valued at $252.2 million. Third Avenue Management, Horizon Asset Management, and Select Equity Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Brookfield Asset Management Inc. (NYSE:BAM) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies who sold off their positions entirely heading into Q3. Intriguingly, Israel Englander’s Millennium Management dropped the largest stake of the 700 funds followed by Insider Monkey, valued at close to $6.2 million in stock. Jim Simons’s fund, Renaissance Technologies, also sold off its stock, about $5.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Asset Management Inc. (NYSE:BAM) but similarly valued. We will take a look at Zoetis Inc (NYSE:ZTS), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), and Prologis Inc (NYSE:PLD). This group of stocks’ market values are similar to BAM’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.70 billion. That figure was $1.12 billion in BAM’s case. Zoetis Inc (NYSE:ZTS) is the most popular stock in this table. On the other hand Prologis Inc (NYSE:PLD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Brookfield Asset Management Inc. (NYSE:BAM) is even less popular than PLD. 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.