Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 8.5 percentage points through November 22nd. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Black Knight, Inc. (NYSE:BKI) going to take off soon? The smart money is selling. The number of bullish hedge fund bets retreated by 3 lately. Our calculations also showed that BKI isn't among the 30 most popular stocks among hedge funds. BKI was in 42 hedge funds' portfolios at the end of the third quarter of 2019. There were 45 hedge funds in our database with BKI positions at the end of the previous quarter.
To most market participants, hedge funds are perceived as slow, old investment vehicles of yesteryear. While there are greater than 8000 funds trading at present, We hone in on the aristocrats of this club, around 750 funds. These investment experts shepherd the lion's share of all hedge funds' total capital, and by keeping an eye on their highest performing picks, Insider Monkey has spotted a few investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_25086" align="aligncenter" width="450"] Dan Loeb of Third Point[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the new hedge fund action regarding Black Knight, Inc. (NYSE:BKI).
How are hedge funds trading Black Knight, Inc. (NYSE:BKI)?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BKI over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Black Knight, Inc. (NYSE:BKI), which was worth $177.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $125.3 million worth of shares. Third Point, Palestra Capital Management, and Aravt Global were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Aravt Global allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 8.78% of its portfolio. Lionstone Capital Management is also relatively very bullish on the stock, earmarking 8.38 percent of its 13F equity portfolio to BKI.
Judging by the fact that Black Knight, Inc. (NYSE:BKI) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedgies who were dropping their entire stakes by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth about $22.8 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $14 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Black Knight, Inc. (NYSE:BKI) but similarly valued. These stocks are Omega Healthcare Investors Inc (NYSE:OHI), CPFL Energia S.A. (NYSE:CPL), OGE Energy Corp. (NYSE:OGE), and US Foods Holding Corp. (NYSE:USFD). This group of stocks' market values are closest to BKI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OHI,18,176390,1 CPL,3,17897,-1 OGE,16,201507,3 USFD,42,1269520,3 Average,19.75,416329,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $883 million in BKI's case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 3 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately BKI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BKI were disappointed as the stock returned 0.4% during the fourth quarter (through 11/22) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.