While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Black Stone Minerals LP (NYSE:BSM).
Black Stone Minerals LP (NYSE:BSM) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that BSM 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 view the fresh hedge fund action encompassing Black Stone Minerals LP (NYSE:BSM).
What does smart money think about Black Stone Minerals LP (NYSE:BSM)?
At Q2's end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the first quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in BSM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Horizon Asset Management was the largest shareholder of Black Stone Minerals LP (NYSE:BSM), with a stake worth $4.7 million reported as of the end of March. Trailing Horizon Asset Management was Renaissance Technologies, which amassed a stake valued at $4.1 million. Citadel Investment Group, Cannell Capital, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Black Stone Minerals LP (NYSE:BSM). Arrowstreet Capital had $0.5 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.1 million investment in the stock during the quarter.
Let's check out 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 Terreno Realty Corporation (NYSE:TRNO), Sunstone Hotel Investors Inc (NYSE:SHO), South Jersey Industries Inc (NYSE:SJI), and Watts Water Technologies Inc (NYSE:WTS). This group of stocks' market caps resemble BSM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRNO,9,48390,-4 SHO,21,220719,1 SJI,13,69668,2 WTS,15,336617,0 Average,14.5,168849,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $11 million in BSM's case. Sunstone Hotel Investors Inc (NYSE:SHO) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Black Stone Minerals LP (NYSE:BSM) is even less popular than TRNO. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -5.7% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.