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Were Hedge Funds Right About Flocking Into Brighthouse Financial, Inc. (BHF)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Brighthouse Financial, Inc. (NASDAQ:BHF).

Brighthouse Financial, Inc. (NASDAQ:BHF) was in 24 hedge funds’ portfolios at the end of December. BHF has experienced an increase in hedge fund sentiment in recent months. There were 22 hedge funds in our database with BHF holdings at the end of the previous quarter. Our calculations also showed that BHF isn’t among the 30 most popular stocks among hedge funds.

To the average investor there are a lot of methods stock traders can use to value publicly traded companies. A couple of the best methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can beat their index-focused peers by a superb amount (see the details here).

GREENLIGHT CAPITAL

We’re going to analyze the latest hedge fund action encompassing Brighthouse Financial, Inc. (NASDAQ:BHF).

How have hedgies been trading Brighthouse Financial, Inc. (NASDAQ:BHF)?

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BHF over the last 14 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

BHF_apr2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in Brighthouse Financial, Inc. (NASDAQ:BHF). Diamond Hill Capital has a $147 million position in the stock, comprising 0.9% of its 13F portfolio. The second most bullish fund manager is Greenlight Capital, led by David Einhorn, holding a $100.4 million position; 7.3% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Mike Masters’s Masters Capital Management, Steven Richman’s East Side Capital (RR Partners) and Emanuel J. Friedman’s EJF Capital.

As aggregate interest increased, key hedge funds were breaking ground themselves. Raging Capital Management, managed by William C. Martin, established the most valuable call position in Brighthouse Financial, Inc. (NASDAQ:BHF). Raging Capital Management had $5.2 million invested in the company at the end of the quarter. Jonathan Kolatch’s Redwood Capital Management also initiated a $3 million position during the quarter. The following funds were also among the new BHF investors: Steve Cohen’s Point72 Asset Management, Ari Zweiman’s 683 Capital Partners, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Brighthouse Financial, Inc. (NASDAQ:BHF) but similarly valued. We will take a look at Esterline Technologies Corporation (NYSE:ESL), Enstar Group Ltd. (NASDAQ:ESGR), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), and Selective Insurance Group, Inc. (NASDAQ:SIGI). This group of stocks’ market values are closest to BHF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESL 28 569401 8
ESGR 9 497539 -1
PNFP 15 123864 2
SIGI 14 26205 4
Average 16.5 304252 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $378 million in BHF’s case. Esterline Technologies Corporation (NYSE:ESL) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 9 bullish hedge fund positions. Brighthouse Financial, Inc. (NASDAQ:BHF) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on BHF as the stock returned 34.5% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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