Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Hedge fund interest in Brookfield Infrastructure Partners L.P. (NYSE:BIP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare BIP to other stocks including Molson Coors Brewing Company (NYSE:TAP), Agnico Eagle Mines Limited (NYSE:AEM), and Cboe Global Markets, Inc. (NASDAQ:CBOE) to get a better sense of its popularity.
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 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 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.
Unlike this former hedge fund manager 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. We're going to analyze the recent hedge fund action encompassing Brookfield Infrastructure Partners L.P. (NYSE:BIP).
Hedge fund activity in Brookfield Infrastructure Partners L.P. (NYSE:BIP)
At the end of the second quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in BIP 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.
Of the funds tracked by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the number one position in Brookfield Infrastructure Partners L.P. (NYSE:BIP), worth close to $25.1 million, corresponding to 0.2% of its total 13F portfolio. On Select Equity Group's heels is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $6.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Renaissance Technologies, Murray Stahl's Horizon Asset Management and Ken Griffin's Citadel Investment Group.
Seeing as Brookfield Infrastructure Partners L.P. (NYSE:BIP) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies that elected to cut their positions entirely in the second quarter. Intriguingly, Matthew Hulsizer's PEAK6 Capital Management cut the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling about $1 million in stock. Frederick DiSanto's fund, Ancora Advisors, also dropped its stock, about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Brookfield Infrastructure Partners L.P. (NYSE:BIP) but similarly valued. We will take a look at Molson Coors Brewing Company (NYSE:TAP), Agnico Eagle Mines Limited (NYSE:AEM), Cboe Global Markets, Inc. (NASDAQ:CBOE), and Old Dominion Freight Line, Inc. (NASDAQ:ODFL). This group of stocks' market caps resemble BIP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TAP,25,451878,-2 AEM,26,379563,2 CBOE,24,1270655,2 ODFL,23,199829,-3 Average,24.5,575481,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $45 million in BIP's case. Agnico Eagle Mines Limited (NYSE:AEM) is the most popular stock in this table. On the other hand Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Brookfield Infrastructure Partners L.P. (NYSE:BIP) is even less popular than ODFL. Hedge funds clearly dropped the ball on BIP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on BIP as the stock returned 16.8% during the third quarter and outperformed the market by an even larger margin. 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.