While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Black Knight, Inc. (NYSE:BKI) and see how the stock performed in comparison to hedge funds' consensus picks.
Black Knight, Inc. (NYSE:BKI) shareholders have witnessed a decrease in hedge fund interest in recent months. BKI was in 42 hedge funds' portfolios at the end of September. There were 45 hedge funds in our database with BKI holdings at the end of the second quarter. Our calculations also showed that BKI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
To most shareholders, hedge funds are assumed to be slow, old financial vehicles of years past. While there are greater than 8000 funds with their doors open today, We look at the top tier of this club, around 750 funds. It is estimated that this group of investors command the majority of the smart money's total asset base, and by tailing their unrivaled equity investments, Insider Monkey has come up with many investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_25086" align="aligncenter" width="600"] Dan Loeb of Third Point[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to analyze the new hedge fund action regarding Black Knight, Inc. (NYSE:BKI).
What have hedge funds been doing with Black Knight, Inc. (NYSE:BKI)?
At Q3's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in BKI a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Black Knight, Inc. (NYSE:BKI), with a stake worth $177.8 million reported as of the end of September. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $125.3 million. Third Point, Palestra Capital Management, and Aravt Global 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 Aravt Global allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 8.78% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, setting aside 8.38 percent of its 13F equity portfolio to BKI.
Seeing as Black Knight, Inc. (NYSE:BKI) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few hedgies who were dropping their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the biggest position of the 750 funds followed by Insider Monkey, comprising close to $22.8 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dropped its stock, about $14 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Black Knight, Inc. (NYSE:BKI) but similarly valued. These stocks are Omega Healthcare Investors Inc (NYSE:OHI), CPFL Energia S.A. (NYSE:CPL), OGE Energy Corp. (NYSE:OGE), and US Foods Holding Corp. (NYSE:USFD). This group of stocks' market valuations are similar to BKI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OHI,18,176390,1 CPL,3,17897,-1 OGE,16,201507,3 USFD,42,1269520,3 Average,19.75,416329,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $883 million in BKI's case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 3 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BKI as the stock returned 43.1% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.