In this article you are going to find out whether hedge funds think Brookfield Business Partners L.P. (NYSE:BBU) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Brookfield Business Partners L.P. (NYSE:BBU) has seen an increase in support from the world’s most elite money managers of late. Brookfield Business Partners L.P. (NYSE:BBU) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 7. Our calculations also showed that BBU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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. 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.
Ian Wace of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a look at the key hedge fund action regarding Brookfield Business Partners L.P. (NYSE:BBU).
Hedge fund activity in Brookfield Business Partners L.P. (NYSE:BBU)
At the end of September, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BBU over the last 21 quarters. So, let’s review 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, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Brookfield Business Partners L.P. (NYSE:BBU). Citadel Investment Group has a $1.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $1.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Renaissance Technologies, Paul Marshall and Ian Wace’s Marshall Wace LLP and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Brookfield Business Partners L.P. (NYSE:BBU), around 0.0022% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, designating 0.0021 percent of its 13F equity portfolio to BBU.
As aggregate interest increased, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Brookfield Business Partners L.P. (NYSE:BBU). Arrowstreet Capital had $1.4 million invested in the company at the end of the quarter. Jim Simons (founder)’s Renaissance Technologies also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Brookfield Business Partners L.P. (NYSE:BBU) but similarly valued. These stocks are Avient Corporation (NYSE:AVNT), Agios Pharmaceuticals Inc (NASDAQ:AGIO), White Mountains Insurance Group Ltd (NYSE:WTM), Merit Medical Systems, Inc. (NASDAQ:MMSI), Advanced Energy Industries, Inc. (NASDAQ:AEIS), Masonite International Corp (NYSE:DOOR), and Kennametal Inc. (NYSE:KMT). This group of stocks’ market valuations match BBU’s market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVNT,20,221331,-2 AGIO,31,330249,1 WTM,17,115000,6 MMSI,20,289828,4 AEIS,21,87181,0 DOOR,29,495473,2 KMT,16,225704,6 Average,22,252109,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $4 million in BBU’s case. Agios Pharmaceuticals Inc (NASDAQ:AGIO) is the most popular stock in this table. On the other hand Kennametal Inc. (NYSE:KMT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Brookfield Business Partners L.P. (NYSE:BBU) is even less popular than KMT. Our overall hedge fund sentiment score for BBU is 23.1. 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. Hedge funds clearly dropped the ball on BBU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on BBU as the stock returned 19.2% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.