U.S. Markets open in 1 hr 31 mins

Hedge Funds Are Dumping British American Tobacco plc (BTI)

Nina Todic

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not British American Tobacco plc (NYSE:BTI) makes for a good investment right now.

Is British American Tobacco plc (NYSE:BTI) a buy right now? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions decreased by 6 lately. Our calculations also showed that BTI isn't among the 30 most popular stocks among hedge funds. BTI was in 9 hedge funds' portfolios at the end of June. There were 15 hedge funds in our database with BTI positions at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the fresh hedge fund action encompassing British American Tobacco plc (NYSE:BTI).

Hedge fund activity in British American Tobacco plc (NYSE:BTI)

At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BTI over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

No of Hedge Funds with BTI Positions

When looking at the institutional investors followed by Insider Monkey, Orbis Investment Management, managed by William B. Gray, holds the biggest position in British American Tobacco plc (NYSE:BTI). Orbis Investment Management has a $137.8 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Maverick Capital, led by Lee Ainslie, holding a $76.8 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Jim Simons's Renaissance Technologies, Ken Griffin's Citadel Investment Group and D. E. Shaw's D E Shaw.

Because British American Tobacco plc (NYSE:BTI) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there is a sect of money managers that elected to cut their entire stakes last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $108.9 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $22 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let's now review hedge fund activity in other stocks similar to British American Tobacco plc (NYSE:BTI). These stocks are Booking Holdings Inc. (NASDAQ:BKNG), China Petroleum & Chemical Corp (NYSE:SNP), Lowe's Companies, Inc. (NYSE:LOW), and Mondelez International Inc (NASDAQ:MDLZ). This group of stocks' market valuations are closest to BTI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKNG,72,5253718,-5 SNP,11,222276,-2 LOW,63,4104051,7 MDLZ,47,2755070,0 Average,48.25,3083779,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $3084 million. That figure was $252 million in BTI's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks British American Tobacco plc (NYSE:BTI) is even less popular than SNP. Hedge funds clearly dropped the ball on BTI 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on BTI as the stock returned 5.8% during the third quarter 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.

5 Most Popular Stocks Among Hedge Funds

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

Related Content