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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Companhia Brasileira de Distrib. (NYSE:CBD).
Companhia Brasileira de Distrib. (NYSE:CBD) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Integra Lifesciences Holdings Corp (NASDAQ:IART), GrubHub Inc (NYSE:GRUB), and Eaton Vance Corp (NYSE:EV) to gather more data points. Our calculations also showed that CBD 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.
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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the key hedge fund action surrounding Companhia Brasileira de Distrib. (NYSE:CBD).
How are hedge funds trading Companhia Brasileira de Distrib. (NYSE:CBD)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CBD over the last 17 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Companhia Brasileira de Distrib. (NYSE:CBD) was held by Fisher Asset Management, which reported holding $22.3 million worth of stock at the end of September. It was followed by Indus Capital with a $5.5 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Marshall Wace. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Companhia Brasileira de Distrib. (NYSE:CBD), around 0.91% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to CBD.
Due to the fact that Companhia Brasileira de Distrib. (NYSE:CBD) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there exists a select few hedgies that elected to cut their full holdings heading into Q4. It's worth mentioning that Minhua Zhang's Weld Capital Management cut the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $1 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also sold off its stock, about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Companhia Brasileira de Distrib. (NYSE:CBD) but similarly valued. These stocks are Integra Lifesciences Holdings Corp (NASDAQ:IART), GrubHub Inc (NYSE:GRUB), Eaton Vance Corp (NYSE:EV), and Seaboard Corporation (NYSE:SEB). This group of stocks' market caps match CBD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IART,21,216426,0 GRUB,23,595061,-9 EV,15,101488,0 SEB,16,147649,0 Average,18.75,265156,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $45 million in CBD's case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Eaton Vance Corp (NYSE:EV) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Companhia Brasileira de Distrib. (NYSE:CBD) is even less popular than EV. Hedge funds dodged a bullet by taking a bearish stance towards CBD. 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 CBD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CBD investors were disappointed as the stock returned -2.3% 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.