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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Ballard Power Systems Inc. (NASDAQ:BLDP)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Ballard Power Systems Inc. (NASDAQ:BLDP) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Edgewell Personal Care Company (NYSE:EPC), Park National Corporation (NYSE:PRK), and Core Laboratories N.V. (NYSE:CLB) to gather more data points. Our calculations also showed that BLDP 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_322405" align="aligncenter" width="399"] New York Stock Exchange[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we're going to take a look at the recent hedge fund action regarding Ballard Power Systems Inc. (NASDAQ:BLDP).
How have hedgies been trading Ballard Power Systems Inc. (NASDAQ:BLDP)?
At Q4's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 2 hedge funds with a bullish position in BLDP a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Two Sigma Advisors was the largest shareholder of Ballard Power Systems Inc. (NASDAQ:BLDP), with a stake worth $1 million reported as of the end of September. Trailing Two Sigma Advisors was Citadel Investment Group, which amassed a stake valued at $0.6 million. Arrowstreet Capital, Millennium Management, and Citadel Investment Group 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 Gotham Asset Management allocated the biggest weight to Ballard Power Systems Inc. (NASDAQ:BLDP), around 0.0037% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, setting aside 0.0025 percent of its 13F equity portfolio to BLDP.
Since Ballard Power Systems Inc. (NASDAQ:BLDP) has faced declining sentiment from the smart money, it's easy to see that there is a sect of money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Renaissance Technologies said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $1.8 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dropped about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Ballard Power Systems Inc. (NASDAQ:BLDP). These stocks are Edgewell Personal Care Company (NYSE:EPC), Park National Corporation (NYSE:PRK), Core Laboratories N.V. (NYSE:CLB), and Mobile Mini Inc (NASDAQ:MINI). This group of stocks' market values resemble BLDP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPC,26,233741,6 PRK,10,15018,1 CLB,25,118775,9 MINI,24,193790,2 Average,21.25,140331,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $3 million in BLDP's case. Edgewell Personal Care Company (NYSE:EPC) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Ballard Power Systems Inc. (NASDAQ:BLDP) is even less popular than PRK. Hedge funds clearly dropped the ball on BLDP 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on BLDP as the stock returned 17.8% during the same time period and outperformed the market by an even larger margin. 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.