We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Brighthouse Financial, Inc. (NASDAQ:BHF) and determine whether hedge funds skillfully traded this stock.
Brighthouse Financial, Inc. (NASDAQ:BHF) investors should pay attention to an increase in hedge fund sentiment lately. Brighthouse Financial, Inc. (NASDAQ:BHF) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 43. Our calculations also showed that BHF isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a gander at the recent hedge fund action encompassing Brighthouse Financial, Inc. (NASDAQ:BHF).
How are hedge funds trading Brighthouse Financial, Inc. (NASDAQ:BHF)?
At second quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in BHF a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Greenlight Capital held the most valuable stake in Brighthouse Financial, Inc. (NASDAQ:BHF), which was worth $101.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $49.5 million worth of shares. Diamond Hill Capital, Miller Value Partners, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenlight Capital allocated the biggest weight to Brighthouse Financial, Inc. (NASDAQ:BHF), around 10.98% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, setting aside 3.33 percent of its 13F equity portfolio to BHF.
Consequently, key hedge funds were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, established the largest position in Brighthouse Financial, Inc. (NASDAQ:BHF). GLG Partners had $5.7 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $3.1 million position during the quarter. The other funds with brand new BHF positions are Michael Gelband’s ExodusPoint Capital, Donald Sussman’s Paloma Partners, and Greg Eisner’s Engineers Gate Manager.
Let’s check out hedge fund activity in other stocks similar to Brighthouse Financial, Inc. (NASDAQ:BHF). These stocks are Diodes Incorporated (NASDAQ:DIOD), Manchester United PLC (NYSE:MANU), Green Dot Corporation (NYSE:GDOT), Advanced Energy Industries, Inc. (NASDAQ:AEIS), Acushnet Holdings Corp. (NYSE:GOLF), Webster Financial Corporation (NYSE:WBS), and Pluralsight, Inc. (NASDAQ:PS). This group of stocks’ market values match BHF’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DIOD,14,78957,1 MANU,11,35251,3 GDOT,23,700625,1 AEIS,21,81139,7 GOLF,11,31850,-1 WBS,30,245581,-3 PS,27,233743,9 Average,19.6,201021,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $333 million in BHF’s case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Brighthouse Financial, Inc. (NASDAQ:BHF) is more popular among hedge funds. Our overall hedge fund sentiment score for BHF is 83.7. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately BHF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHF were disappointed as the stock returned 9.1% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.