Were Hedge Funds Right About Buying Petroleo Brasileiro S.A. – Petrobras (PBR)?

During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) and see how the stock is affected by the recent hedge fund activity.

Is Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) ready to rally soon? Hedge funds are getting more bullish. The number of bullish hedge fund bets improved by 4 lately. Our calculations also showed that PBR 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 32 percentage points since May 2014 through March 12, 2019 (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.


We’re going to take a glance at the key hedge fund action regarding Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR).

What does the smart money think about Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR)?

At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the second quarter of 2018. On the other hand, there were a total of 27 hedge funds with a bullish position in PBR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Fisher Asset Management held the most valuable stake in Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), which was worth $546.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $342 million worth of shares. Moreover, Capital Growth Management, HBK Investments, and Millennium Management were also bullish on Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, specific money managers have jumped into Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) headfirst. Contrarian Capital, managed by Jon Bauer, created the most valuable position in Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). Contrarian Capital had $71.3 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also initiated a $64.2 million position during the quarter. The other funds with new positions in the stock are David Halpert’s Prince Street Capital Management, and Hugh Sloane’s Sloane Robinson Investment Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) but similarly valued. We will take a look at Bristol Myers Squibb Company (NYSE:BMY), CVS Health Corporation (NYSE:CVS), United Parcel Service, Inc. (NYSE:UPS), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks’ market caps are similar to PBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMY 58 3871503 10
CVS 77 2831097 28
UPS 32 1158324 1
BSBR 10 170883 3
Average 44.25 2007952 10.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.25 hedge funds with bullish positions and the average amount invested in these stocks was $2008 million. That figure was $1758 million in PBR’s case. CVS Health Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 10 bullish hedge fund positions. Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is not the least popular stock in this group but hedge fund interest is still below average. 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. Hedge funds were also right about betting on PBR as the stock returned 27.5% and outperformed the market as well.

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