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Were Hedge Funds Right About Flocking Into BRF Brasil Foods SA (BRFS) ?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of BRF Brasil Foods SA (NYSE:BRFS).

BRF Brasil Foods SA (NYSE:BRFS) was in 13 hedge funds’ portfolios at the end of June. BRFS has seen an increase in enthusiasm from smart money of late. There were 10 hedge funds in our database with BRFS positions at the end of the previous quarter. Our calculations also showed that BRFS isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.

Kerr Neilson

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the key hedge fund action regarding BRF Brasil Foods SA (NYSE:BRFS).

What have hedge funds been doing with BRF Brasil Foods SA (NYSE:BRFS)?

Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in BRFS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BRFS_oct2019

The largest stake in BRF Brasil Foods SA (NYSE:BRFS) was held by Oaktree Capital Management, which reported holding $42.5 million worth of stock at the end of March. It was followed by Coatue Management with a $20.1 million position. Other investors bullish on the company included Millennium Management, Platinum Asset Management, and QVT Financial.

Now, specific money managers have jumped into BRF Brasil Foods SA (NYSE:BRFS) headfirst. Coatue Management, managed by Philippe Laffont, established the biggest position in BRF Brasil Foods SA (NYSE:BRFS). Coatue Management had $20.1 million invested in the company at the end of the quarter. Kerr Neilson’s Platinum Asset Management also made a $10.9 million investment in the stock during the quarter. The other funds with brand new BRFS positions are Renaissance Technologies, D. E. Shaw’s D E Shaw, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to BRF Brasil Foods SA (NYSE:BRFS). We will take a look at Charles River Laboratories International Inc. (NYSE:CRL), Robert Half International Inc. (NYSE:RHI), Hexcel Corporation (NYSE:HXL), and Sealed Air Corporation (NYSE:SEE). This group of stocks’ market values are similar to BRFS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRL 29 1066583 5
RHI 26 618890 1
HXL 23 150565 -2
SEE 27 1009952 -2
Average 26.25 711498 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $711 million. That figure was $124 million in BRFS’s case. Charles River Laboratories International Inc. (NYSE:CRL) is the most popular stock in this table. On the other hand Hexcel Corporation (NYSE:HXL) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks BRF Brasil Foods SA (NYSE:BRFS) is even less popular than HXL. Hedge funds clearly dropped the ball on BRFS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on BRFS as the stock returned 20.5% during the third quarter and outperformed the market by an even larger margin.

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

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