U.S. Markets open in 5 hrs 25 mins

Hedge Funds Are Warming Up To Bunge Limited (BG)

Reymerlyn Martin

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. That's a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Bunge Limited (NYSE:BG) a superb investment today? Hedge funds are buying. The number of long hedge fund positions increased by 3 lately. Our calculations also showed that BG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BG was in 34 hedge funds' portfolios at the end of September. There were 31 hedge funds in our database with BG holdings at the end of the previous quarter. The ETF that has the biggest weight in BG was First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26575" align="aligncenter" width="600"] Louis Bacon Moore of Moore Capital[/caption]

MOORE GLOBAL INVESTMENTS

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. We're going to take a look at the fresh hedge fund action surrounding Bunge Limited (NYSE:BG).

How have hedgies been trading Bunge Limited (NYSE:BG)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in BG 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.

BG_dec2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the largest position in Bunge Limited (NYSE:BG), worth close to $126.1 million, amounting to 0.1% of its total 13F portfolio. On AQR Capital Management's heels is Phill Gross and Robert Atchinson of Adage Capital Management, with a $100.8 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish consist of Louis Bacon's Moore Global Investments, Ken Griffin's Citadel Investment Group and Renaissance Technologies. In terms of the portfolio weights assigned to each position Litespeed Management allocated the biggest weight to Bunge Limited (NYSE:BG), around 6.85% of its portfolio. Harvest Capital Strategies is also relatively very bullish on the stock, setting aside 4.23 percent of its 13F equity portfolio to BG.

Consequently, key hedge funds have been driving this bullishness. GLG Partners, managed by Noam Gottesman, created the biggest position in Bunge Limited (NYSE:BG). GLG Partners had $25 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe's Voleon Capital also made a $2.5 million investment in the stock during the quarter. The other funds with brand new BG positions are David Harding's Winton Capital Management, Louis Navellier's Navellier & Associates, and David Andre and Astro Teller's Cerebellum Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Bunge Limited (NYSE:BG) but similarly valued. We will take a look at Zayo Group Holdings Inc (NYSE:ZAYO), Alaska Air Group, Inc. (NYSE:ALK), Pilgrim's Pride Corporation (NASDAQ:PPC), and ICON Public Limited Company (NASDAQ:ICLR). This group of stocks' market values are similar to BG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZAYO,50,1997124,-9 ALK,31,486037,9 PPC,24,264319,5 ICLR,20,613069,1 Average,31.25,840137,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $580 million in BG's case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand ICON Public Limited Company (NASDAQ:ICLR) is the least popular one with only 20 bullish hedge fund positions. Bunge Limited (NYSE:BG) 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 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. Unfortunately BG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BG were disappointed as the stock returned -4.9% 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 many of these stocks already outperformed the market so far this year.

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

Related Content