Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Brunswick Corporation (NYSE:BC) makes for a good investment right now.
Brunswick Corporation (NYSE:BC) has experienced an increase in hedge fund interest in recent months. BC was in 36 hedge funds' portfolios at the end of December. There were 29 hedge funds in our database with BC positions at the end of the previous quarter. Our calculations also showed that BC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_364853" align="aligncenter" width="399"] William Von Mueffling of Cantillon Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a look at the new hedge fund action surrounding Brunswick Corporation (NYSE:BC).
What does smart money think about Brunswick Corporation (NYSE:BC)?
Heading into the first quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in BC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cantillon Capital Management held the most valuable stake in Brunswick Corporation (NYSE:BC), which was worth $205.5 million at the end of the third quarter. On the second spot was Lakewood Capital Management which amassed $172 million worth of shares. Arrowstreet Capital, AQR Capital Management, and D E Shaw 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 Lakewood Capital Management allocated the biggest weight to Brunswick Corporation (NYSE:BC), around 6.08% of its 13F portfolio. Valueworks LLC is also relatively very bullish on the stock, dishing out 4.13 percent of its 13F equity portfolio to BC.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in Brunswick Corporation (NYSE:BC). Citadel Investment Group had $4.5 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $1.6 million investment in the stock during the quarter. The following funds were also among the new BC investors: Paul Tudor Jones's Tudor Investment Corp, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Brunswick Corporation (NYSE:BC). We will take a look at Telecom Argentina S.A. (NYSE:TEO), Millicom International Cellular S.A. (NASDAQ:TIGO), Azul S.A. (NYSE:AZUL), and bluebird bio Inc (NASDAQ:BLUE). This group of stocks' market caps are similar to BC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEO,5,37708,1 TIGO,7,92775,1 AZUL,11,194860,-1 BLUE,33,369218,16 Average,14,173640,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $675 million in BC's case. bluebird bio Inc (NASDAQ:BLUE) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Brunswick Corporation (NYSE:BC) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately BC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BC were disappointed as the stock returned -41.2% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.