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Was The Smart Money Right About Piling Into Bunge Limited (BG)?

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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Bunge Limited (NYSE:BG).

Bunge Limited (NYSE:BG) has seen an increase in hedge fund sentiment of late. Bunge Limited (NYSE:BG) was in 51 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 41 hedge funds in our database with BG holdings at the end of September. Our calculations also showed that BG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by 124 percentage points since March 2017 (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.

Robert Pohly of Samlyn Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's check out the recent hedge fund action surrounding Bunge Limited (NYSE:BG).

Do Hedge Funds Think BG Is A Good Stock To Buy Now?

At the end of December, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in BG a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Louis Bacon's Moore Global Investments has the most valuable position in Bunge Limited (NYSE:BG), worth close to $197.4 million, accounting for 2.2% of its total 13F portfolio. The second most bullish fund manager is Phill Gross and Robert Atchinson of Adage Capital Management, with a $99.5 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish encompass Edgar Wachenheim's Greenhaven Associates, Israel Englander's Millennium Management and Robert Pohly's Samlyn Capital. In terms of the portfolio weights assigned to each position Brightline Capital allocated the biggest weight to Bunge Limited (NYSE:BG), around 8.91% of its 13F portfolio. Engine No. 1 LLC is also relatively very bullish on the stock, earmarking 8.7 percent of its 13F equity portfolio to BG.

As aggregate interest increased, specific money managers were leading the bulls' herd. Samlyn Capital, managed by Robert Pohly, assembled the most outsized position in Bunge Limited (NYSE:BG). Samlyn Capital had $48.9 million invested in the company at the end of the quarter. David Rosen's Rubric Capital Management also made a $45.9 million investment in the stock during the quarter. The other funds with brand new BG positions are Wayne Cooperman's Cobalt Capital Management, Chris James's Engine No. 1 LLC, and Till Bechtolsheimer's Arosa Capital Management.

Let's check out hedge fund activity in other stocks similar to Bunge Limited (NYSE:BG). These stocks are Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), RH (NYSE:RH), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Shaw Communications Inc (NYSE:SJR), The Western Union Company (NYSE:WU), Flex Ltd. (NASDAQ:FLEX), and Newell Brands Inc. (NASDAQ:NWL). This group of stocks' market valuations match BG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RARE,26,609331,6 RH,42,1925993,2 KOF,6,384456,0 SJR,19,143455,6 WU,29,491046,-7 FLEX,44,1373056,17 NWL,23,1529633,-4 Average,27,922424,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $922 million. That figure was $937 million in BG's case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Bunge Limited (NYSE:BG) is more popular among hedge funds. Our overall hedge fund sentiment score for BG is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on BG as the stock returned 29.6% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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