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Hedge Fund Favorites vs. Broadridge Financial Solutions, Inc. (BR) In 2019

Nina Todic

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Broadridge Financial Solutions, Inc. (NYSE:BR) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. BR was in 27 hedge funds' portfolios at the end of September. There were 21 hedge funds in our database with BR positions at the end of the previous quarter. Our calculations also showed that BR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we're going to go over the new hedge fund action regarding Broadridge Financial Solutions, Inc. (NYSE:BR).

What have hedge funds been doing with Broadridge Financial Solutions, Inc. (NYSE:BR)?

Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BR over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Junto Capital Management held the most valuable stake in Broadridge Financial Solutions, Inc. (NYSE:BR), which was worth $53.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $48.8 million worth of shares. Bristol Gate Capital Partners, Diamond Hill Capital, and Renaissance Technologies 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 Strycker View Capital allocated the biggest weight to Broadridge Financial Solutions, Inc. (NYSE:BR), around 9.87% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, designating 4.25 percent of its 13F equity portfolio to BR.

Now, key hedge funds were leading the bulls' herd. Junto Capital Management, managed by James Parsons, assembled the biggest position in Broadridge Financial Solutions, Inc. (NYSE:BR). Junto Capital Management had $53.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $27.3 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Anand Parekh's Alyeska Investment Group, and David E. Shaw's D E Shaw.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Broadridge Financial Solutions, Inc. (NYSE:BR) but similarly valued. We will take a look at Seagate Technology plc (NASDAQ:STX), UDR, Inc. (NYSE:UDR), Banco de Chile (NYSE:BCH), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO). This group of stocks' market caps are closest to BR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STX,26,2311475,3 UDR,21,560389,5 BCH,4,66263,-2 TTWO,57,1596551,-3 Average,27,1133670,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1134 million. That figure was $313 million in BR's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Broadridge Financial Solutions, Inc. (NYSE:BR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BR investors were disappointed as the stock returned 29.9% in 2019 (as of 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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