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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Brady Corp (NYSE:BRC) based on that data and determine whether they were really smart about the stock.
Brady Corp (NYSE:BRC) was in 10 hedge funds' portfolios at the end of the first quarter of 2020. BRC has experienced a decrease in enthusiasm from smart money in recent months. There were 15 hedge funds in our database with BRC positions at the end of the previous quarter. Our calculations also showed that BRC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 58 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. 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.
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John Rogers of Ariel Investments[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's check out the key hedge fund action regarding Brady Corp (NYSE:BRC).
What have hedge funds been doing with Brady Corp (NYSE:BRC)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in BRC a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in Brady Corp (NYSE:BRC). Renaissance Technologies has a $106.6 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies's heels is Ariel Investments, led by John W. Rogers, holding a $20.2 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise David Harding's Winton Capital Management, Ken Griffin's Citadel Investment Group and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Brady Corp (NYSE:BRC), around 0.35% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to BRC.
Because Brady Corp (NYSE:BRC) has experienced bearish sentiment from the smart money, logic holds that there exists a select few fund managers who were dropping their full holdings in the first quarter. Interestingly, Noam Gottesman's GLG Partners said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, comprising about $24.8 million in stock. Mika Toikka's fund, AlphaCrest Capital Management, also dumped its stock, about $0.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 5 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Brady Corp (NYSE:BRC) but similarly valued. We will take a look at Nordstrom, Inc. (NYSE:JWN), F.N.B. Corp (NYSE:FNB), Umpqua Holdings Corp (NASDAQ:UMPQ), and TopBuild Corp (NYSE:BLD). All of these stocks' market caps match BRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JWN,25,72883,-5 FNB,24,63920,1 UMPQ,23,183885,7 BLD,20,79991,-9 Average,23,100170,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $140 million in BRC's case. Nordstrom, Inc. (NYSE:JWN) is the most popular stock in this table. On the other hand TopBuild Corp (NYSE:BLD) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Brady Corp (NYSE:BRC) is even less popular than BLD. Hedge funds dodged a bullet by taking a bearish stance towards BRC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately BRC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BRC investors were disappointed as the stock returned 4.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.