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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Brookfield Asset Management Inc. (NYSE:BAM).
Is BAM a good stock to buy? Brookfield Asset Management Inc. (NYSE:BAM) was in 34 hedge funds' portfolios at the end of March. The all time high for this statistic is 38. BAM investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 38 hedge funds in our database with BAM holdings at the end of December. Our calculations also showed that BAM isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to analyze the new hedge fund action encompassing Brookfield Asset Management Inc. (NYSE:BAM).
Do Hedge Funds Think BAM Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in BAM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Brookfield Asset Management Inc. (NYSE:BAM) was held by Akre Capital Management, which reported holding $580.3 million worth of stock at the end of December. It was followed by Markel Gayner Asset Management with a $387.5 million position. Other investors bullish on the company included Citadel Investment Group, Horizon Asset Management, and Third Avenue Management. In terms of the portfolio weights assigned to each position Markel Gayner Asset Management allocated the biggest weight to Brookfield Asset Management Inc. (NYSE:BAM), around 5.36% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to BAM.
Seeing as Brookfield Asset Management Inc. (NYSE:BAM) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedgies that slashed their positions entirely heading into Q2. Interestingly, Josh Tarasoff's Greenlea Lane Capital sold off the biggest position of all the hedgies monitored by Insider Monkey, valued at about $41.8 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund said goodbye to about $10.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds heading into Q2.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Brookfield Asset Management Inc. (NYSE:BAM) but similarly valued. We will take a look at Westpac Banking Corporation (NYSE:WBK), Colgate-Palmolive Company (NYSE:CL), The Sherwin-Williams Company (NYSE:SHW), The Southern Company (NYSE:SO), Snowflake Inc (NYSE:SNOW), HCA Healthcare Inc (NYSE:HCA), and Equinor ASA (NYSE:EQNR). This group of stocks' market valuations are similar to BAM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WBK,3,35365,0 CL,48,2304590,2 SHW,51,2016614,2 SO,35,464056,3 SNOW,71,12965065,17 HCA,62,3245183,-11 EQNR,8,99733,-10 Average,39.7,3018658,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.7 hedge funds with bullish positions and the average amount invested in these stocks was $3019 million. That figure was $1388 million in BAM's case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 bullish hedge fund positions. Brookfield Asset Management Inc. (NYSE:BAM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BAM is 50.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on BAM as the stock returned 17.6% since the end of the first quarter (through 6/25) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.