Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority 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 is wise to check hedge fund activity before you invest your time or your savings on a stock like Brady Corp (NYSE:BRC).
Brady Corp (NYSE:BRC) was in 15 hedge funds' portfolios at the end of March. BRC shareholders have witnessed a decrease in hedge fund interest lately. There were 20 hedge funds in our database with BRC holdings at the end of the previous quarter. Our calculations also showed that brc isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to take a glance at the fresh hedge fund action surrounding Brady Corp (NYSE:BRC).
What does smart money think about Brady Corp (NYSE:BRC)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BRC over the last 15 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Brady Corp (NYSE:BRC), which was worth $103.4 million at the end of the first quarter. On the second spot was Ariel Investments which amassed $60.6 million worth of shares. Moreover, D E Shaw, Two Sigma Advisors, and GLG Partners were also bullish on Brady Corp (NYSE:BRC), allocating a large percentage of their portfolios to this stock.
Seeing as Brady Corp (NYSE:BRC) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. At the top of the heap, Peter Algert and Kevin Coldiron's Algert Coldiron Investors cut the largest investment of all the hedgies watched by Insider Monkey, totaling close to $3.9 million in stock. Minhua Zhang's fund, Weld Capital Management, also said goodbye to its stock, about $0.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 5 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Brady Corp (NYSE:BRC). We will take a look at Healthcare Services Group, Inc. (NASDAQ:HCSG), Myriad Genetics, Inc. (NASDAQ:MYGN), Rapid7 Inc (NASDAQ:RPD), and South State Corporation (NASDAQ:SSB). This group of stocks' market values are closest to BRC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCSG,21,101611,9 MYGN,17,343687,-2 RPD,27,386668,3 SSB,13,25616,-1 Average,19.5,214396,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $184 million in BRC's case. Rapid7 Inc (NASDAQ:RPD) is the most popular stock in this table. On the other hand South State Corporation (NASDAQ:SSB) is the least popular one with only 13 bullish hedge fund positions. Brady Corp (NYSE:BRC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on BRC, though not to the same extent, as the stock returned 4.5% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.