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You might find it hard to believe, but billionaire investors have been exiting NVIDIA (NASDAQ:NVDA) stock in record numbers. Among those investors seen selling NVIDIA in recent months were:
- Stanley Druckenmiller, one of the earliest investors to the NVIDIA party back in early 2023.
- Ken Griffin of Citadel Advisors, one of the world’s highest-paid hedge fund managers.
- David Shaw of D.E. Shaw.
- David Tepper of Appaloosa.
- Steve Cohen of Point72.
It’s quite an illustrious list. Those hoping to ride the wave of NVIDIA’s AI windfall profits ought to consider that the so-called “smart money” is taking the other side of the trade. If, on the other hand, you’re looking to acquire shares, there is actually a large cap Canadian company that is seeing a lot of billionaire buying right now. In this article, I will explore the Canadian stock that billionaires can’t seem to get enough of.
Brookfield
Brookfield Corp (TSX:BN) is a Canadian financial conglomerate that has been bought by billionaires like Bill Ackman and Bruce Flatt (the company’s own CEO). Additionally, Oaktree’s Howard Marks acquired Brookfield shares, not by direct purchase but in the cash and stock transaction through which Brookfield acquired Oaktree. It’s not clear whether Marks still holds the BN shares he received in the transaction.
Of the three shareholders just mentioned, the most interesting one is probably Bill Ackman. Ackman is a “buy and hold” activist investor who is well known for holding companies long term. It’s to be expected that Flatt would buy shares in the company he runs if he believes in the company, and Marks’ receiving BN shares in a deal may or may not be meaningful. Ackman is the most interesting and unexpected of these three.
An interest rate-sensitive company
It’s possible that Bill Ackman’s Brookfield investment is a play on falling interest rates. Ackman has been making a lot of interest rate-related bets this year. For example, he shorted the U.S. 30-year treasury when he expected its yield to rise to 5.5%. It was a successful trade for Ackman and his team.
The reason why Ackman might now be betting on falling interest rates with Brookfield is because Brookfield is a very rate-sensitive company. It is highly leveraged, with very high levels of debt – albeit spread out across partially owned subsidiaries and tied to specific properties. Brookfield manages its debt well, which keeps it safe from extreme disasters, but the interest expense on the debt is considerable. The further rates fall, the less Brookfield’s interest expenses, and the higher its profits.
Other virtues
Given how Bill Ackman has been thinking about markets lately, it’s possible that his Brookfield bet is at least partially a bet on falling interest rates. However, there are many other factors he could be looking at as well. These include:
- A stellar reputation. When Howard Marks sold Oaktree to Brookfield, he said the latter’s good reputation was part of why he did it. A good reputation helps a company get in on deals, which Brookfield has been doing in large volume in recent years.
- A fast-growing insurance business. Brookfield’s insurance business is growing rapidly and generates money that Brookfield can invest.
- A 75% stake in Brookfield Asset Management. Brookfield Asset Management is an extraordinarily successful asset manager with a 45% profit margin. It produces a lot of cash for Brookfield.
Any of the points above could explain why Ackman and other billionaires are buying Brookfield. At any rate, they constitute good reasons to consider an investment in the stock today.
