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

Nina Todic

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) based on that data.

Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) investors should pay attention to a decrease in hedge fund sentiment in recent months. EBR was in 5 hedge funds' portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with EBR positions at the end of the previous quarter. Our calculations also showed that EBR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a glance at the fresh hedge fund action regarding Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR).

What does smart money think about Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in EBR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) was held by Arrowstreet Capital, which reported holding $9.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $8.9 million position. Other investors bullish on the company included AQR Capital Management, Kopernik Global Investors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR), around 0.05% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to EBR.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified EBR as a viable investment and initiated a position in the stock.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) but similarly valued. We will take a look at Ally Financial Inc (NYSE:ALLY), Icahn Enterprises LP (NASDAQ:IEP), Slack Technologies Inc (NYSE:WORK), and Gartner Inc (NYSE:IT). All of these stocks' market caps resemble EBR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLY,51,2112182,8 IEP,5,12357565,0 WORK,27,326449,-10 IT,19,659624,2 Average,25.5,3863955,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $3864 million. That figure was $21 million in EBR's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Centrais Eletricas Brasileiras S.A. - Eletrobras (NYSE:EBR) is even less popular than IEP. Hedge funds dodged a bullet by taking a bearish stance towards EBR. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EBR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EBR investors were disappointed as the stock returned -14.2% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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