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Should I Avoid B2Gold Corp (BTG)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards B2Gold Corp (NYSE:BTG) at the end of the second quarter and determine whether the smart money was really smart about this stock.

B2Gold Corp (NYSE:BTG) has seen a decrease in activity from the world’s largest hedge funds lately. B2Gold Corp (NYSE:BTG) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. Our calculations also showed that BTG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.

Eric Sprott Sprott Asset Management

Eric Sprott of Sprott Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the recent hedge fund action regarding B2Gold Corp (NYSE:BTG).

How are hedge funds trading B2Gold Corp (NYSE:BTG)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in BTG over the last 20 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of B2Gold Corp (NYSE:BTG), with a stake worth $248.9 million reported as of the end of September. Trailing Renaissance Technologies was Sprott Asset Management, which amassed a stake valued at $66.3 million. GLG Partners, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sun Valley Gold allocated the biggest weight to B2Gold Corp (NYSE:BTG), around 4.81% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, dishing out 4.14 percent of its 13F equity portfolio to BTG.

Due to the fact that B2Gold Corp (NYSE:BTG) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few funds that decided to sell off their positions entirely in the second quarter. Interestingly, Peter Franklin Palmedo’s Sun Valley Gold sold off the largest investment of the 750 funds watched by Insider Monkey, valued at about $11.3 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $3.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as B2Gold Corp (NYSE:BTG) but similarly valued. We will take a look at GFL Environmental Inc. (NYSE:GFL), Floor & Decor Holdings, Inc. (NYSE:FND), Voya Financial Inc (NYSE:VOYA), Thor Industries, Inc. (NYSE:THO), Berry Global Group Inc (NYSE:BERY), Axon Enterprise, Inc. (NASDAQ:AAXN), and Farfetch Limited (NYSE:FTCH). All of these stocks’ market caps match BTG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GFL 16 207198 6
FND 44 817503 21
VOYA 41 791893 9
THO 39 301565 19
BERY 40 1455029 6
AAXN 39 609333 13
FTCH 37 837456 15
Average 36.6 717140 12.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $500 million in BTG’s case. Floor & Decor Holdings, Inc. (NYSE:FND) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 16 bullish hedge fund positions. B2Gold Corp (NYSE:BTG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BTG is 36. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on BTG as the stock returned 15.3% in the third quarter and outperformed the market by an even larger margin.

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