Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The fourth quarter of 2018 is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Brady Corp (NYSE:BRC).
Brady Corp (NYSE:BRC) has seen an increase in activity from the world's largest hedge funds of late. BRC was in 20 hedge funds' portfolios at the end of December. There were 17 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.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to review the recent hedge fund action regarding Brady Corp (NYSE:BRC).
What have hedge funds been doing with Brady Corp (NYSE:BRC)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in BRC 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.
Among these funds, Renaissance Technologies held the most valuable stake in Brady Corp (NYSE:BRC), which was worth $99.4 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $62 million worth of shares. Moreover, Millennium Management, D E Shaw, and Two Sigma Advisors were also bullish on Brady Corp (NYSE:BRC), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, initiated the most outsized position in Brady Corp (NYSE:BRC). ExodusPoint Capital had $2.2 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.9 million position during the quarter. The other funds with brand new BRC positions are Dmitry Balyasny's Balyasny Asset Management and Hoon Kim's Quantinno Capital.
Let's also examine hedge fund activity in other stocks similar to Brady Corp (NYSE:BRC). These stocks are Argo Group International Holdings, Ltd. (NYSE:ARGO), International Bancshares Corp (NASDAQ:IBOC), Navient Corp (NASDAQ:NAVI), and John Bean Technologies Corporation (NYSE:JBT). This group of 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 ARGO,13,163795,0 IBOC,19,132694,3 NAVI,29,398940,2 JBT,9,59938,-4 Average,17.5,188842,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $220 million in BRC's case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand John Bean Technologies Corporation (NYSE:JBT) is the least popular one with only 9 bullish hedge fund positions. Brady Corp (NYSE:BRC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BRC wasn't nearly as popular as these 15 stock and hedge funds that were betting on BRC were disappointed as the stock returned 11.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.