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Here is What Hedge Funds Think About Brookfield Business Partners (BBU)

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) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that BBU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare BBU to other stocks including Danimer Scientific, Inc. (NYSE:DNMR), Werner Enterprises, Inc. (NASDAQ:WERN), and Simmons First National Corporation (NASDAQ:SFNC) to get a better sense of its popularity.

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Brookfield Business Partners L.P. (NYSE:BBU).

Do Hedge Funds Think BBU Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BBU over the last 23 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Brookfield Business Partners L.P. (NYSE:BBU) was held by Renaissance Technologies, which reported holding $4.3 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $1.7 million position. The only other hedge fund that is bullish on the company was Horizon Asset Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Horizon Asset Management).

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. We will take a look at Danimer Scientific, Inc. (NYSE:DNMR), Werner Enterprises, Inc. (NASDAQ:WERN), Simmons First National Corporation (NASDAQ:SFNC), Hilton Grand Vacations Inc. (NYSE:HGV), Old National Bancorp (NASDAQ:ONB), Root, Inc. (NASDAQ:ROOT), and Insperity Inc (NYSE:NSP). This group of stocks’ market valuations resemble BBU’s market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DNMR,30,533383,12 WERN,21,213603,-3 SFNC,12,22164,6 HGV,34,783198,3 ONB,17,50718,6 ROOT,18,346606,-7 NSP,20,226976,-5 Average,21.7,310950,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $6 million in BBU’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Brookfield Business Partners L.P. (NYSE:BBU) is even less popular than SFNC. Our overall hedge fund sentiment score for BBU is 17.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on BBU as the stock returned 12.8% since Q1 (through June 11th) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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