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Hedge Funds Are Dumping Centrais Eletricas Brasileiras S.A. – Eletrobras (EBR)

Nina Todic

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 Peltz's recent General Electric 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 Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR).

Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) has seen a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that EBR 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_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

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. We're going to take a peek at the new hedge fund action surrounding Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR).

Hedge fund activity in Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR)

At Q2's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the first quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in EBR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with EBR Positions

Among these funds, Arrowstreet Capital held the most valuable stake in Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR), which was worth $11.4 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $6.8 million worth of shares. Moreover, Millennium Management, AQR Capital Management, and Renaissance Technologies were also bullish on Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR), allocating a large percentage of their portfolios to this stock.

Because Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) has faced bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of funds that decided to sell off their entire stakes by the end of the second quarter. At the top of the heap, David Costen Haley's HBK Investments dumped the biggest position of the 750 funds tracked by Insider Monkey, worth about $0.4 million in stock. Michael Platt and William Reeves's fund, BlueCrest Capital Mgmt., also sold off its stock, about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks similar to Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR). These stocks are BanColombia S.A. (NYSE:CIB), Brookfield Infrastructure Partners L.P. (NYSE:BIP), Molson Coors Brewing Company (NYSE:TAP), and Agnico Eagle Mines Limited (NYSE:AEM). All of these stocks' market caps match EBR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIB,10,159266,-1 BIP,7,44941,0 TAP,25,451878,-2 AEM,26,379563,2 Average,17,258912,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $24 million in EBR's case. Agnico Eagle Mines Limited (NYSE:AEM) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) is even less popular than BIP. Our calculations showed that top 20 most popular stocks (view the video below) 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 EBR, though not to the same extent, as the stock returned 5% during the third quarter and outperformed the market as well. 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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