Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to BankUnited, Inc. (NYSE:BKU) changed recently.
Hedge fund interest in BankUnited, Inc. (NYSE:BKU) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), BridgeBio Pharma, Inc. (NASDAQ:BBIO), and MFA Financial, Inc. (NYSE:MFA) to gather more data points. Our calculations also showed that BKU isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a gander at the key hedge fund action surrounding BankUnited, Inc. (NYSE:BKU).
How are hedge funds trading BankUnited, Inc. (NYSE:BKU)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in BKU a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in BankUnited, Inc. (NYSE:BKU), which was worth $183.6 million at the end of the second quarter. On the second spot was Millennium Management which amassed $95.6 million worth of shares. Moreover, Citadel Investment Group, Point72 Asset Management, and Renaissance Technologies were also bullish on BankUnited, Inc. (NYSE:BKU), allocating a large percentage of their portfolios to this stock.
Since BankUnited, Inc. (NYSE:BKU) has experienced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers that slashed their entire stakes heading into Q3. It's worth mentioning that Ravi Chopra's Azora Capital sold off the biggest position of all the hedgies tracked by Insider Monkey, comprising about $8.5 million in stock, and Sander Gerber's Hudson Bay Capital Management was right behind this move, as the fund dumped about $3.4 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to BankUnited, Inc. (NYSE:BKU). We will take a look at Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB), BridgeBio Pharma, Inc. (NASDAQ:BBIO), MFA Financial, Inc. (NYSE:MFA), and Legg Mason, Inc. (NYSE:LM). All of these stocks' market caps are closest to BKU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOMB,13,25864,-2 BBIO,14,1069073,14 MFA,17,103174,1 LM,18,448975,1 Average,15.5,411772,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $412 million. That figure was $480 million in BKU's case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand Home Bancshares, Inc. (Conway, AR) (NASDAQ:HOMB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks BankUnited, Inc. (NYSE:BKU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BKU wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BKU were disappointed as the stock returned 0.3% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.