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Were Hedge Funds Right About Selling Belden Inc. (BDC)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Belden Inc. (NYSE:BDC).

Belden Inc. (NYSE:BDC) was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2019. BDC shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 13 hedge funds in our database with BDC holdings at the end of the previous quarter. Our calculations also showed that BDC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the fresh hedge fund action encompassing Belden Inc. (NYSE:BDC).

What does smart money think about Belden Inc. (NYSE:BDC)?

At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BDC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is BDC A Good Stock To Buy?

Among these funds, Arrowstreet Capital held the most valuable stake in Belden Inc. (NYSE:BDC), which was worth $16.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $16.1 million worth of shares. D E Shaw, AQR Capital Management, and Invenomic Capital Management 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 Invenomic Capital Management allocated the biggest weight to Belden Inc. (NYSE:BDC), around 2.05% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to BDC.

Judging by the fact that Belden Inc. (NYSE:BDC) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies who sold off their entire stakes last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of all the hedgies watched by Insider Monkey, worth an estimated $0.9 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Belden Inc. (NYSE:BDC). These stocks are Scientific Games Corp (NASDAQ:SGMS), Avon Products, Inc. (NYSE:AVP), SeaWorld Entertainment Inc (NYSE:SEAS), and Delek US Holdings, Inc. (NYSE:DK). This group of stocks’ market values are similar to BDC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGMS 33 725702 5
AVP 13 307162 -8
SEAS 39 1283543 4
DK 19 61378 -3
Average 26 594446 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $65 million in BDC’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Avon Products, Inc. (NYSE:AVP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Belden Inc. (NYSE:BDC) is even less popular than AVP. Hedge funds dodged a bullet by taking a bearish stance towards BDC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately BDC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BDC investors were disappointed as the stock returned -35% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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