Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Banco Santander (Brasil) SA (NYSE:BSBR).
Is Banco Santander (Brasil) SA (NYSE:BSBR) a buy, sell, or hold? Money managers are taking a bullish view. The number of long hedge fund bets increased by 1 in recent months. Our calculations also showed that BSBR isn't among the 30 most popular stocks among hedge funds. BSBR was in 11 hedge funds' portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with BSBR positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 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 analyze the recent hedge fund action regarding Banco Santander (Brasil) SA (NYSE:BSBR).
How have hedgies been trading Banco Santander (Brasil) SA (NYSE:BSBR)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in BSBR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Banco Santander (Brasil) SA (NYSE:BSBR) was held by Capital Growth Management, which reported holding $61.4 million worth of stock at the end of March. It was followed by GLG Partners with a $60.8 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Arrowstreet Capital.
As one would reasonably expect, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Banco Santander (Brasil) SA (NYSE:BSBR). Arrowstreet Capital had $3.4 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.9 million investment in the stock during the quarter. The other funds with brand new BSBR positions are Matthew Tewksbury's Stevens Capital Management and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Banco Santander (Brasil) SA (NYSE:BSBR) but similarly valued. These stocks are United Parcel Service, Inc. (NYSE:UPS), Gilead Sciences, Inc. (NASDAQ:GILD), U.S. Bancorp (NYSE:USB), and British American Tobacco plc (NYSE:BTI). This group of stocks' market valuations resemble BSBR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPS,36,1051684,-1 GILD,57,3863121,-1 USB,39,7777146,-5 BTI,9,252481,-6 Average,35.25,3236108,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $3236 million. That figure was $180 million in BSBR's case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 9 bullish hedge fund positions. Banco Santander (Brasil) SA (NYSE:BSBR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BSBR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BSBR investors were disappointed as the stock returned -7.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.