Hedge Fund Consensus Stocks vs. Brighthouse Financial, Inc. (BHF) In 2019
It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Brighthouse Financial, Inc. (NASDAQ:BHF).
Brighthouse Financial, Inc. (NASDAQ:BHF) has seen an increase in hedge fund sentiment lately. Our calculations also showed that BHF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255017" align="alignnone" width="600"]
David Einhorn of Greenlight Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's check out the latest hedge fund action surrounding Brighthouse Financial, Inc. (NASDAQ:BHF).
What have hedge funds been doing with Brighthouse Financial, Inc. (NASDAQ:BHF)?
At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in BHF a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings 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 $144.6 million at the end of the third quarter. On the second spot was Miller Value Partners which amassed $92.6 million worth of shares. AQR Capital Management, Arrowstreet Capital, and Diamond Hill Capital 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 10.41% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, setting aside 3.84 percent of its 13F equity portfolio to BHF.
As industrywide interest jumped, key money managers have jumped into Brighthouse Financial, Inc. (NASDAQ:BHF) headfirst. EJF Capital, managed by Emanuel J. Friedman, established the largest position in Brighthouse Financial, Inc. (NASDAQ:BHF). EJF Capital had $13.7 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $1.1 million position during the quarter. The following funds were also among the new BHF investors: Michael Platt and William Reeves's BlueCrest Capital Mgmt., Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Jay Petschek and Steven Major's Corsair Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Brighthouse Financial, Inc. (NASDAQ:BHF) but similarly valued. We will take a look at Marriott Vacations Worldwide Corporation (NYSE:VAC), CoreSite Realty Corp (NYSE:COR), Mercury Systems Inc (NASDAQ:MRCY), and Aurora Cannabis Inc. (NASDAQ:ACB). This group of stocks' market values resemble BHF's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VAC,27,488721,0 COR,14,265606,0 MRCY,22,112572,1 ACB,10,17463,0 Average,18.25,221091,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $529 million in BHF's case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NASDAQ:ACB) is the least popular one with only 10 bullish hedge fund positions. Brighthouse Financial, Inc. (NASDAQ:BHF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately BHF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BHF were disappointed as the stock returned 28.7% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
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.
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