With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Black Stone Minerals LP (NYSE:BSM).
Hedge fund interest in Black Stone Minerals LP (NYSE:BSM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare BSM to other stocks including Darling Ingredients Inc. (NYSE:DAR), HUYA Inc. (NYSE:HUYA), and Commscope Holding Company Inc (NASDAQ:COMM) 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 market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's review the fresh hedge fund action surrounding Black Stone Minerals LP (NYSE:BSM).
What does the smart money think about Black Stone Minerals LP (NYSE:BSM)?
At Q4's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in BSM a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Horizon Asset Management was the largest shareholder of Black Stone Minerals LP (NYSE:BSM), with a stake worth $7 million reported as of the end of September. Trailing Horizon Asset Management was Renaissance Technologies, which amassed a stake valued at $1.5 million. Cannell Capital, Citadel Investment Group, and PEAK6 Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Black Stone Minerals LP (NYSE:BSM) but similarly valued. These stocks are Darling Ingredients Inc. (NYSE:DAR), HUYA Inc. (NYSE:HUYA), Commscope Holding Company Inc (NASDAQ:COMM), and GW Pharmaceuticals plc (NASDAQ:GWPH). This group of stocks' market values are closest to BSM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAR,18,260731,-1 HUYA,16,150270,-1 COMM,28,887562,-3 GWPH,25,369097,7 Average,21.75,416915,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $11 million in BSM's case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Black Stone Minerals LP (NYSE:BSM) is even less popular than HUYA. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on BSM, though not to the same extent, as the stock returned 21.4% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.