How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Blackstone Group Inc. (NYSE:BX) and determine whether hedge funds had an edge regarding this stock.
The Blackstone Group Inc. (NYSE:BX) was in 47 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 49. BX has experienced a decrease in support from the world's most elite money managers lately. There were 49 hedge funds in our database with BX holdings at the end of March. Our calculations also showed that BX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most stock holders, hedge funds are seen as unimportant, old financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, Our researchers choose to focus on the top tier of this club, around 850 funds. These money managers orchestrate bulk of the hedge fund industry's total asset base, and by paying attention to their finest investments, Insider Monkey has identified a few investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Mick Hellman of HMI Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to review the key hedge fund action surrounding The Blackstone Group Inc. (NYSE:BX).
How have hedgies been trading The Blackstone Group Inc. (NYSE:BX)?
At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in BX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Egerton Capital Limited was the largest shareholder of The Blackstone Group Inc. (NYSE:BX), with a stake worth $216.9 million reported as of the end of September. Trailing Egerton Capital Limited was HMI Capital, which amassed a stake valued at $188.1 million. Millennium Management, Farallon Capital, and D E Shaw 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 Heard Capital allocated the biggest weight to The Blackstone Group Inc. (NYSE:BX), around 10.01% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, designating 8.97 percent of its 13F equity portfolio to BX.
Because The Blackstone Group Inc. (NYSE:BX) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds who were dropping their entire stakes heading into Q3. At the top of the heap, Bill Ackman's Pershing Square sold off the biggest investment of all the hedgies followed by Insider Monkey, worth about $25 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dropped about $22.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's now review 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 Stryker Corporation (NYSE:SYK), Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), Fiserv, Inc. (NASDAQ:FISV), Booking Holdings Inc. (NASDAQ:BKNG), Zoetis Inc (NYSE:ZTS), and VMware, Inc. (NYSE:VMW). This group of stocks' market caps are closest to BX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYK,50,1257094,2 ISRG,43,1094503,-7 ANTM,69,4103137,-1 FISV,85,4642685,18 BKNG,96,6098595,6 ZTS,58,1985007,-2 VMW,42,696435,15 Average,63.3,2839637,4.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 63.3 hedge funds with bullish positions and the average amount invested in these stocks was $2840 million. That figure was $1434 million in BX's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 42 bullish hedge fund positions. The Blackstone Group Inc. (NYSE:BX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BX is 36.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately BX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BX investors were disappointed as the stock returned -5.9% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.