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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Belden Inc. (NYSE:BDC) to find out whether there were any major changes in hedge funds' views.
Is BDC a good stock to buy now? Investors who are in the know were selling. The number of long hedge fund bets fell by 3 lately. Belden Inc. (NYSE:BDC) was in 16 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that BDC isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we're going to take a look at the key hedge fund action regarding Belden Inc. (NYSE:BDC).
Do Hedge Funds Think BDC Is A Good Stock To Buy Now?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in BDC over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Belden Inc. (NYSE:BDC) was held by Pzena Investment Management, which reported holding $43.6 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $18.5 million position. Other investors bullish on the company included D E Shaw, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to Belden Inc. (NYSE:BDC), around 1.23% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.27 percent of its 13F equity portfolio to BDC.
Because Belden Inc. (NYSE:BDC) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of money managers who were dropping their full holdings last quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management said goodbye to the biggest position of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $0.7 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dropped about $0.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Belden Inc. (NYSE:BDC) but similarly valued. These stocks are Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), PROS Holdings, Inc. (NYSE:PRO), Super Micro Computer, Inc. (NASDAQ:SMCI), Kontoor Brands, Inc. (NYSE:KTB), Horace Mann Educators Corporation (NYSE:HMN), The Geo Group, Inc. (NYSE:GEO), and Sykes Enterprises, Incorporated (NASDAQ:SYKE). This group of stocks' market values are similar to BDC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KLIC,24,200684,-8 PRO,19,195224,0 SMCI,19,423049,-3 KTB,18,81103,0 HMN,13,18160,7 GEO,12,65539,-8 SYKE,13,47344,-5 Average,16.9,147300,-2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $109 million in BDC's case. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) is the most popular stock in this table. On the other hand The Geo Group, Inc. (NYSE:GEO) is the least popular one with only 12 bullish hedge fund positions. Belden Inc. (NYSE:BDC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BDC is 40.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on BDC as the stock returned 35.2% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.