Were Hedge Funds Right About Souring On BHP Group (BBL)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding BHP Group (NYSE:BBL) and determine whether hedge funds had an edge regarding this stock.

BHP Group (NYSE:BBL) has experienced a decrease in support from the world’s most elite money managers recently. BBL was in 21 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with BBL positions at the end of the previous quarter. Our calculations also showed that BBL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


James Dinan of York Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s analyze the key hedge fund action surrounding BHP Group (NYSE:BBL).

What have hedge funds been doing with BHP Group (NYSE:BBL)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in BBL a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of BHP Group (NYSE:BBL), with a stake worth $184 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $162.9 million. Sand Grove Capital Partners, Polaris Capital Management, and Millennium 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 Sand Grove Capital Partners allocated the biggest weight to BHP Group (NYSE:BBL), around 15.06% of its 13F portfolio. Athos Capital is also relatively very bullish on the stock, dishing out 5.96 percent of its 13F equity portfolio to BBL.

Seeing as BHP Group (NYSE:BBL) has experienced declining sentiment from hedge fund managers, logic holds that there exists a select few hedgies that decided to sell off their entire stakes by the end of the first quarter. Interestingly, Sara Nainzadeh’s Centenus Global Management said goodbye to the largest position of all the hedgies watched by Insider Monkey, totaling about $30.5 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $11 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BHP Group (NYSE:BBL) but similarly valued. These stocks are Fidelity National Information Services Inc. (NYSE:FIS), Diageo plc (NYSE:DEO), Sony Corporation (NYSE:SNE), and T-Mobile US, Inc. (NASDAQ:TMUS). All of these stocks’ market caps are closest to BBL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIS 105 8378290 0
DEO 17 621500 0
SNE 28 461322 2
TMUS 65 1645711 4
Average 53.75 2776706 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.75 hedge funds with bullish positions and the average amount invested in these stocks was $2777 million. That figure was $803 million in BBL’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 17 bullish hedge fund positions. BHP Group (NYSE:BBL) is not the least popular stock in this group but hedge fund interest is still below average. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on BBL as the stock returned 49.2% since the end of March and outperformed the market by an even larger margin.

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