Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like B2Gold Corp (NYSEMKT:BTG).
B2Gold Corp (NYSEMKT:BTG) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that BTG isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 review the recent hedge fund action encompassing B2Gold Corp (NYSEMKT:BTG).
How are hedge funds trading B2Gold Corp (NYSEMKT:BTG)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in BTG a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies holds the most valuable position in B2Gold Corp (NYSEMKT:BTG). Renaissance Technologies has a $71 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is GLG Partners, led by Noam Gottesman, holding a $20.1 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions include Ken Griffin's Citadel Investment Group, Eric Sprott's Sprott Asset Management and Lee Ainslie's Maverick Capital.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in B2Gold Corp (NYSEMKT:BTG). Marshall Wace LLP had $2.3 million invested in the company at the end of the quarter. Mark Broach's Manatuck Hill Partners also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as B2Gold Corp (NYSEMKT:BTG) but similarly valued. We will take a look at TerraForm Power Inc (NASDAQ:TERP), Corporate Office Properties Trust (NYSE:OFC), Sibanye Gold Ltd (NYSE:SBGL), and Acadia Healthcare Company Inc (NASDAQ:ACHC). All of these stocks' market caps are closest to BTG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TERP,12,163216,1 OFC,16,183349,4 SBGL,9,92525,-3 ACHC,17,593650,-2 Average,13.5,258185,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $145 million in BTG's case. Acadia Healthcare Company Inc (NASDAQ:ACHC) is the most popular stock in this table. On the other hand Sibanye Gold Ltd (NYSE:SBGL) is the least popular one with only 9 bullish hedge fund positions. B2Gold Corp (NYSEMKT:BTG) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on BTG as the stock returned 6.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.