We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Black Stone Minerals LP (NYSE:BSM).
Black Stone Minerals LP (NYSE:BSM) investors should pay attention to a decrease in hedge fund sentiment of late. BSM was in 4 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 7 hedge funds in our database with BSM holdings at the end of the previous quarter. Our calculations also showed that BSM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_746830" align="aligncenter" width="397"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to review the recent hedge fund action encompassing Black Stone Minerals LP (NYSE:BSM).
What have hedge funds been doing with Black Stone Minerals LP (NYSE:BSM)?
At the end of the fourth quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from the third quarter of 2019. On the other hand, there were a total of 5 hedge funds with a bullish position in BSM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Horizon Asset Management, managed by Murray Stahl, holds the largest position in Black Stone Minerals LP (NYSE:BSM). Horizon Asset Management has a $1.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Matthew Hulsizer of PEAK6 Capital Management, with a $0.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Ken Griffin's Citadel Investment Group, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Black Stone Minerals LP (NYSE:BSM), around 0.06% of its 13F portfolio. PEAK6 Capital Management is also relatively very bullish on the stock, designating 0.0045 percent of its 13F equity portfolio to BSM.
Because Black Stone Minerals LP (NYSE:BSM) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that decided to sell off their full holdings last quarter. Intriguingly, J. Carlo Cannell's Cannell Capital cut the biggest investment of all the hedgies watched by Insider Monkey, totaling about $0.7 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also sold off its stock, about $0.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.
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 Dana Incorporated (NYSE:DAN), Apergy Corporation (NYSE:APY), HMS Holdings Corp. (NASDAQ:HMSY), and Natera Inc (NASDAQ:NTRA). This group of stocks' market caps are closest to BSM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAN,27,277930,0 APY,17,119261,0 HMSY,25,137946,1 NTRA,33,325243,9 Average,25.5,215095,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $4 million in BSM's case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Apergy Corporation (NYSE:APY) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Black Stone Minerals LP (NYSE:BSM) is even less popular than APY. Hedge funds dodged a bullet by taking a bearish stance towards BSM. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately BSM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BSM investors were disappointed as the stock returned -57% during the same time period 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.