The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Builders FirstSource, Inc. (NASDAQ:BLDR) based on those filings.
Is Builders FirstSource, Inc. (NASDAQ:BLDR) a healthy stock for your portfolio? Hedge funds are reducing their bets on the stock. The number of bullish hedge fund bets shrunk by 11 in recent months. Our calculations also showed that BLDR 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). BLDR was in 29 hedge funds' portfolios at the end of March. There were 40 hedge funds in our database with BLDR positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="385"] Matthew Hulsizer of PEAK6 Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny cannabis play. 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. Keeping this in mind let's take a look at the new hedge fund action encompassing Builders FirstSource, Inc. (NASDAQ:BLDR).
What have hedge funds been doing with Builders FirstSource, Inc. (NASDAQ:BLDR)?
At Q1's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in BLDR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the most valuable position in Builders FirstSource, Inc. (NASDAQ:BLDR). Renaissance Technologies has a $53.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Alexander Medina Seaver of Stadium Capital Management, with a $36.5 million position; 20.7% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism include Robert Joseph Caruso's Select Equity Group, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Jed Nussdorf's Soapstone Capital. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Builders FirstSource, Inc. (NASDAQ:BLDR), around 20.67% of its 13F portfolio. Soapstone Capital is also relatively very bullish on the stock, setting aside 19.5 percent of its 13F equity portfolio to BLDR.
Since Builders FirstSource, Inc. (NASDAQ:BLDR) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of fund managers that slashed their positions entirely heading into Q4. It's worth mentioning that Israel Englander's Millennium Management sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $12.7 million in stock, and Thomas E. Claugus's GMT Capital was right behind this move, as the fund sold off about $9.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Builders FirstSource, Inc. (NASDAQ:BLDR) but similarly valued. These stocks are Shake Shack Inc (NYSE:SHAK), Adtalem Global Education Inc. (NYSE:ATGE), 8x8, Inc. (NYSE:EGHT), and NBT Bancorp Inc. (NASDAQ:NBTB). This group of stocks' market valuations resemble BLDR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHAK,22,393753,-3 ATGE,12,268581,-8 EGHT,20,368670,6 NBTB,4,10462,-3 Average,14.5,260367,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $304 million in BLDR's case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Builders FirstSource, Inc. (NASDAQ:BLDR) 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on BLDR as the stock returned 70.2% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.