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Is The Blackstone Group Inc. (BX) Going to Burn These Hedge Funds?

Nina Todic

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of The Blackstone Group Inc. (NYSE:BX).

The Blackstone Group Inc. (NYSE:BX) shareholders have witnessed a decrease in support from the world's most elite money managers of late. BX was in 30 hedge funds' portfolios at the end of June. There were 34 hedge funds in our database with BX holdings at the end of the previous quarter. Our calculations also showed that BX isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 recent hedge fund action regarding The Blackstone Group Inc. (NYSE:BX).

What does smart money think about The Blackstone Group Inc. (NYSE:BX)?

At Q2's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in BX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BX Positions

When looking at the institutional investors followed by Insider Monkey, Mick Hellman's HMI Capital has the most valuable position in The Blackstone Group Inc. (NYSE:BX), worth close to $124.2 million, corresponding to 12.6% of its total 13F portfolio. Sitting at the No. 2 spot is Select Equity Group, managed by Robert Joseph Caruso, which holds a $108.6 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Richard Chilton's Chilton Investment Company, Tom Gayner's Markel Gayner Asset Management and Ken Griffin's Citadel Investment Group.

Because The Blackstone Group Inc. (NYSE:BX) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers who sold off their full holdings last quarter. Interestingly, John W. Rogers's Ariel Investments dropped the largest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $32 million in stock. Leighton Welch's fund, Welch Capital Partners, also sold off its stock, about $15.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Blackstone Group Inc. (NYSE:BX) but similarly valued. We will take a look at DuPont de Nemours, Inc. (NYSE:DD), General Motors Company (NYSE:GM), Allergan plc (NYSE:AGN), and Crown Castle International Corp. (REIT) (NYSE:CCI). This group of stocks' market valuations resemble BX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DD,42,1023646,-19 GM,49,5743946,-4 AGN,80,6167857,27 CCI,33,1910373,-2 Average,51,3711456,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51 hedge funds with bullish positions and the average amount invested in these stocks was $3711 million. That figure was $519 million in BX's case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Crown Castle International Corp. (REIT) (NYSE:CCI) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks The Blackstone Group Inc. (NYSE:BX) is even less popular than CCI. Hedge funds clearly dropped the ball on BX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on BX as the stock returned 11% during the third quarter and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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