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Did Hedge Funds Make The Right Call On Blucora Inc (BCOR) ?

Abigail Fisher
·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtBlucora Inc (NASDAQ:BCOR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Blucora Inc (NASDAQ:BCOR) investors should pay attention to an increase in enthusiasm from smart money of late. Our calculations also showed that BCOR 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.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to review the key hedge fund action regarding Blucora Inc (NASDAQ:BCOR).

How have hedgies been trading Blucora Inc (NASDAQ:BCOR)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 46% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BCOR over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Blucora Inc (NASDAQ:BCOR), with a stake worth $31.4 million reported as of the end of September. Trailing Renaissance Technologies was Simcoe Capital Management, which amassed a stake valued at $13.3 million. D E Shaw, Red Cedar Management, and Two Sigma Advisors 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 Red Cedar Management allocated the biggest weight to Blucora Inc (NASDAQ:BCOR), around 8.2% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, setting aside 4.08 percent of its 13F equity portfolio to BCOR.

Now, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, created the largest position in Blucora Inc (NASDAQ:BCOR). Citadel Investment Group had $1.7 million invested in the company at the end of the quarter. Ali Motamed's Invenomic Capital Management also made a $0.6 million investment in the stock during the quarter. The other funds with brand new BCOR positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Mika Toikka's AlphaCrest Capital Management, and Greg Eisner's Engineers Gate Manager.

Let's check out hedge fund activity in other stocks similar to Blucora Inc (NASDAQ:BCOR). These stocks are Genfit SA (NASDAQ:GNFT), Great Southern Bancorp, Inc. (NASDAQ:GSBC), Precigen, Inc. (NASDAQ:PGEN), and Ladder Capital Corp (NYSE:LADR). This group of stocks' market caps are closest to BCOR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNFT,2,4694,0 GSBC,12,29827,3 PGEN,13,36340,3 LADR,17,27489,6 Average,11,24588,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $67 million in BCOR's case. Ladder Capital Corp (NYSE:LADR) is the most popular stock in this table. On the other hand Genfit SA (NASDAQ:GNFT) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Blucora Inc (NASDAQ:BCOR) is more popular among hedge funds. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately BCOR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BCOR were disappointed as the stock returned -5.5% since the end of the first 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 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.

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