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Did Hedge Funds Drop The Ball On The Blackstone Group L.P. (BX)?

Nina Todic

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

The Blackstone Group L.P. (NYSE:BX) shareholders have witnessed an increase in hedge fund interest recently. BX was in 34 hedge funds' portfolios at the end of the first quarter of 2019. There were 33 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner

Let's take a glance at the fresh hedge fund action surrounding The Blackstone Group L.P. (NYSE:BX).

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

Heading into the second quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in BX over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds with BX Positions

Among these funds, Select Equity Group held the most valuable stake in The Blackstone Group L.P. (NYSE:BX), which was worth $169.6 million at the end of the first quarter. On the second spot was HMI Capital which amassed $113.7 million worth of shares. Moreover, Select Equity Group, Markel Gayner Asset Management, and Citadel Investment Group were also bullish on The Blackstone Group L.P. (NYSE:BX), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, some big names were leading the bulls' herd. Knoll Capital Management, managed by Fred Knoll, assembled the most valuable position in The Blackstone Group L.P. (NYSE:BX). Knoll Capital Management had $5.4 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also made a $1 million investment in the stock during the quarter. The other funds with brand new BX positions are Aaron Cowen's Suvretta Capital Management, Larry Foley and Paul Farrell's Bronson Point Partners, and Paul Marshall and Ian Wace's Marshall Wace LLP.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Blackstone Group L.P. (NYSE:BX) but similarly valued. These stocks are Cognizant Technology Solutions Corp (NASDAQ:CTSH), Baxter International Inc. (NYSE:BAX), TC Energy Corporation (NYSE:TRP), and Target Corporation (NYSE:TGT). This group of stocks' market caps are similar to BX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTSH,44,2375052,3 BAX,30,3088339,-6 TRP,12,250653,-3 TGT,50,1392603,10 Average,34,1776662,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1777 million. That figure was $501 million in BX's case. Target Corporation (NYSE:TGT) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 12 bullish hedge fund positions. The Blackstone Group L.P. (NYSE:BX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on BX as the stock returned 13.3% during the same time frame and outperformed the market by an even larger margin.

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

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