Top Investors are Wary of These Rising Brazilian Stocks

Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR) and Banco Bradesco SA (ADR) (NYSE:BBD) shares are gaining today fueled by rising oil prices and the strong Brazilian real. Nonetheless, how did the world’s top investors view these stocks in the second quarter, a good indication of their future potential?

General opinion is that hedge funds under perform the S&P500 based on net returns. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning 118% and beating the market by over 60 percentage points (read more details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.

Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR) is up by 3.12% as oil prices continue to rise. Reuters reported that the price of the commodity is trending up after Russia, among the world’s three largest oil producing countries, has indicated its willingness to meet with both OPEC and non-OPEC oil producers, if ever a meeting about the market is called. WTI crude oil for mid-November delivery is up 2.35%, while mid-November Brent crude oil is up 2.87%. The energy sector is mirroring these gains as it is up about 2.5%. The rise of oil today comes as the broader market is also up, with the Dow Jones at 1.39% in green and the S&P500 climbing 1.38%. Petrobras’ gains is a welcome treat for the firm, which has seen its stock decline by over 65% in the past 12 months after the energy giant was rocked by a corruption scandal in its home country. Aside from a high-profile investigation in Brazil involving well-known politicians and company executives, the firm is also facing an increasing number of lawsuits from big-name investors such as Bill Gates through the Bill & Melinda Gates Foundation Trust.

The Gates Foundation trust’s animosity toward Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR) was mirrored by hedge funds in the second quarter, as they owned just 1.30% of the company. Their investment was valued by June 30 at $760.56 million, up only over 3%, despite the stock soaring over 50% during the same period. There were 31 hedge funds with long positions in Petrobras by the end of June, down by four from the previous quarter’s end. Doug Silverman and Alexander Klabin’s Senator Investment Group owned 20 million Petrobras shares as of June 30, down by 3% on the quarter.