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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards BrightSphere Investment Group Inc (NYSE:BSIG) at the end of the second quarter and determine whether the smart money was really smart about this stock.
BrightSphere Investment Group Inc (NYSE:BSIG) shareholders have witnessed an increase in enthusiasm from smart money lately. BrightSphere Investment Group Inc (NYSE:BSIG) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 26. Our calculations also showed that BSIG 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.
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 56 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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 lithium company which could also benefit from the electric car adoption. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a glance at the new hedge fund action encompassing BrightSphere Investment Group Inc (NYSE:BSIG).
How have hedgies been trading BrightSphere Investment Group Inc (NYSE:BSIG)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BSIG over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paulson & Co, managed by John Paulson, holds the number one position in BrightSphere Investment Group Inc (NYSE:BSIG). Paulson & Co has a $249.2 million position in the stock, comprising 8% of its 13F portfolio. The second largest stake is held by Nathaniel August of Mangrove Partners, with a $28.1 million position; the fund has 6.9% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and George Soros's Soros Fund Management. In terms of the portfolio weights assigned to each position Paulson & Co allocated the biggest weight to BrightSphere Investment Group Inc (NYSE:BSIG), around 7.96% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, dishing out 6.86 percent of its 13F equity portfolio to BSIG.
Now, key hedge funds have jumped into BrightSphere Investment Group Inc (NYSE:BSIG) headfirst. Azora Capital, managed by Ravi Chopra, created the most valuable position in BrightSphere Investment Group Inc (NYSE:BSIG). Azora Capital had $6.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $6.5 million position during the quarter. The other funds with brand new BSIG positions are Gregg Moskowitz's Interval Partners, Anand Parekh's Alyeska Investment Group, and Lee Ainslie's Maverick Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as BrightSphere Investment Group Inc (NYSE:BSIG) but similarly valued. We will take a look at Lindsay Corporation (NYSE:LNN), Avidity Biosciences, Inc. (NASDAQ:RNA), Meridian Bioscience, Inc. (NASDAQ:VIVO), United Natural Foods, Inc. (NASDAQ:UNFI), SilverCrest Metals Inc. (NYSE:SILV), Archrock, Inc. (NYSE:AROC), and Matador Resources Co (NYSE:MTDR). All of these stocks' market caps resemble BSIG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNN,11,158723,0 RNA,24,334500,24 VIVO,23,173955,3 UNFI,21,62895,3 SILV,9,104921,0 AROC,12,23184,1 MTDR,23,101616,6 Average,17.6,137113,5.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $346 million in BSIG's case. Avidity Biosciences, Inc. (NASDAQ:RNA) is the most popular stock in this table. On the other hand SilverCrest Metals Inc. (NYSE:SILV) is the least popular one with only 9 bullish hedge fund positions. BrightSphere Investment Group Inc (NYSE:BSIG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BSIG is 75.7. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately BSIG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BSIG were disappointed as the stock returned 3.6% in Q3 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.
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Disclosure: None. This article was originally published at Insider Monkey.