In this article we will take a look at whether hedge funds think Bright Horizons Family Solutions Inc (NYSE:BFAM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Bright Horizons Family Solutions Inc (NYSE:BFAM) has seen a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that BFAM isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 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_221556" align="aligncenter" width="400"] Richard Driehaus of Driehaus 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 these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the latest hedge fund action encompassing Bright Horizons Family Solutions Inc (NYSE:BFAM).
How are hedge funds trading Bright Horizons Family Solutions Inc (NYSE:BFAM)?
At Q1's end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BFAM over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Bright Horizons Family Solutions Inc (NYSE:BFAM), with a stake worth $113.6 million reported as of the end of September. Trailing Select Equity Group was Pelham Capital, which amassed a stake valued at $50.6 million. Marshall Wace LLP, D E Shaw, and Renaissance Technologies 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 Pelham Capital allocated the biggest weight to Bright Horizons Family Solutions Inc (NYSE:BFAM), around 7.32% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, dishing out 1.5 percent of its 13F equity portfolio to BFAM.
Since Bright Horizons Family Solutions Inc (NYSE:BFAM) has faced bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of funds that decided to sell off their entire stakes last quarter. Interestingly, Ken Griffin's Citadel Investment Group dropped the largest position of the "upper crust" of funds monitored by Insider Monkey, comprising an estimated $21.1 million in stock. Robert Pitts's fund, Steadfast Capital Management, also cut its stock, about $6.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Bright Horizons Family Solutions Inc (NYSE:BFAM) but similarly valued. We will take a look at Sociedad Quimica y Minera (NYSE:SQM), Amedisys Inc (NASDAQ:AMED), The Stars Group Inc. (NASDAQ:TSG), and TIM Participacoes SA (NYSE:TSU). This group of stocks' market values resemble BFAM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SQM,10,53846,-3 AMED,20,244124,-2 TSG,34,1097115,-11 TSU,11,154487,0 Average,18.75,387393,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $262 million in BFAM's case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera (NYSE:SQM) is the least popular one with only 10 bullish hedge fund positions. Bright Horizons Family Solutions Inc (NYSE:BFAM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately BFAM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BFAM were disappointed as the stock returned 9.7% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.