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Were Hedge Funds Right About British American Tobacco plc (BTI)?

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  • BTI
  • ^GSPC

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards British American Tobacco plc (NYSE:BTI).

Is British American Tobacco plc (NYSE:BTI) ready to rally soon? The smart money was taking a bearish view. The number of bullish hedge fund bets dropped by 2 recently. British American Tobacco plc (NYSE:BTI) was in 12 hedge funds' portfolios at the end of June. The all time high for this statistic is 30. Our calculations also showed that BTI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

According to most market participants, hedge funds are perceived as slow, old financial tools of the past. While there are greater than 8000 funds with their doors open today, We choose to focus on the elite of this club, around 850 funds. Most estimates calculate that this group of people oversee most of the smart money's total asset base, and by following their unrivaled investments, Insider Monkey has deciphered numerous investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Now we're going to take a glance at the key hedge fund action encompassing British American Tobacco plc (NYSE:BTI).

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

At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BTI over the last 24 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is BTI A Good Stock To Buy?
Is BTI A Good Stock To Buy?

Of the funds tracked by Insider Monkey, William B. Gray's Orbis Investment Management has the number one position in British American Tobacco plc (NYSE:BTI), worth close to $759.2 million, comprising 4.8% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $113 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that are bullish include D. E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to British American Tobacco plc (NYSE:BTI), around 4.8% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to BTI.

Seeing as British American Tobacco plc (NYSE:BTI) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there were a few money managers who sold off their full holdings last quarter. At the top of the heap, Renaissance Technologies dumped the largest investment of the 750 funds watched by Insider Monkey, valued at about $2.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as British American Tobacco plc (NYSE:BTI) but similarly valued. We will take a look at Infosys Limited (NYSE:INFY), Booking Holdings Inc. (NASDAQ:BKNG), PetroChina Company Limited (NYSE:PTR), BP plc (NYSE:BP), Zoetis Inc (NYSE:ZTS), Prologis Inc (NYSE:PLD), and Altria Group Inc (NYSE:MO). This group of stocks' market valuations match BTI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFY,22,2158547,-4 BKNG,100,6943746,-3 PTR,8,85856,0 BP,30,1080625,1 ZTS,58,2705785,0 PLD,40,563748,1 MO,47,948996,9 Average,43.6,2069615,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.6 hedge funds with bullish positions and the average amount invested in these stocks was $2070 million. That figure was $1012 million in BTI's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 8 bullish hedge fund positions. British American Tobacco plc (NYSE:BTI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BTI is 17.2. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately BTI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BTI investors were disappointed as the stock returned -8.5% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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