Hedge Funds Dumped Banco Bradesco SA (BBD) At The Right Time

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Banco Bradesco SA (NYSE:BBD).

Is Banco Bradesco SA (NYSE:BBD) worth your attention right now? The smart money is in a bearish mood. The number of bullish hedge fund bets shrunk by 4 in recent months. Our calculations also showed that BBD isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the new hedge fund action regarding Banco Bradesco SA (NYSE:BBD).

What does smart money think about Banco Bradesco SA (NYSE:BBD)?

Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in BBD a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the number one position in Banco Bradesco SA (NYSE:BBD). Fisher Asset Management has a $407 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Ken Heebner of Capital Growth Management, with a $158.2 million position; 11.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish comprise D. E. Shaw's D E Shaw, Jim Simons's Renaissance Technologies and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Since Banco Bradesco SA (NYSE:BBD) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of hedgies that elected to cut their full holdings heading into Q3. Interestingly, Hugh Sloane's Sloane Robinson Investment Management cut the largest stake of the "upper crust" of funds watched by Insider Monkey, worth an estimated $5.5 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund sold off about $1.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Banco Bradesco SA (NYSE:BBD) but similarly valued. These stocks are Caterpillar Inc. (NYSE:CAT), Stryker Corporation (NYSE:SYK), Bristol-Myers Squibb Company (NYSE:BMY), and The Goldman Sachs Group, Inc. (NYSE:GS). This group of stocks' market values are similar to BBD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAT,45,3000982,-8 SYK,30,489887,-4 BMY,65,3885775,-6 GS,61,8200703,-15 Average,50.25,3894337,-8.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.25 hedge funds with bullish positions and the average amount invested in these stocks was $3894 million. That figure was $752 million in BBD's case. Bristol-Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Stryker Corporation (NYSE:SYK) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Banco Bradesco SA (NYSE:BBD) is even less popular than SYK. Hedge funds dodged a bullet by taking a bearish stance towards BBD. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BBD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BBD investors were disappointed as the stock returned -16.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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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