We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 The Brink's Company (NYSE:BCO).
Is The Brink's Company (NYSE:BCO) undervalued? Prominent investors are turning less bullish. The number of bullish hedge fund positions fell by 7 in recent months. Our calculations also showed that BCO 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.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the latest hedge fund action surrounding The Brink's Company (NYSE:BCO).
What have hedge funds been doing with The Brink's Company (NYSE:BCO)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the second quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in BCO a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, P2 Capital Partners was the largest shareholder of The Brink's Company (NYSE:BCO), with a stake worth $195.4 million reported as of the end of September. Trailing P2 Capital Partners was Iridian Asset Management, which amassed a stake valued at $121 million. Park West Asset Management, Brahman Capital, and Ariel Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to The Brink's Company (NYSE:BCO), around 13.2% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, earmarking 4.24 percent of its 13F equity portfolio to BCO.
Because The Brink's Company (NYSE:BCO) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that slashed their positions entirely last quarter. It's worth mentioning that Richard Driehaus's Driehaus Capital dropped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $4.8 million in stock, and Brad Farber's Atika Capital was right behind this move, as the fund dumped about $3.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 7 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Brink's Company (NYSE:BCO) but similarly valued. We will take a look at Valvoline Inc. (NYSE:VVV), EnLink Midstream LLC (NYSE:ENLC), RBC Bearings Incorporated (NASDAQ:ROLL), and Sterling Bancorp (NYSE:STL). This group of stocks' market values resemble BCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VVV,26,333444,4 ENLC,12,38220,0 ROLL,7,61593,1 STL,23,407369,2 Average,17,210157,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $515 million in BCO's case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 7 bullish hedge fund positions. The Brink's Company (NYSE:BCO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on BCO as the stock returned 12.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.