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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Blackstone Mortgage Trust Inc (NYSE:BXMT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Blackstone Mortgage Trust Inc (NYSE:BXMT) investors should be aware of a decrease in support from the world's most elite money managers recently. BXMT was in 15 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 17 hedge funds in our database with BXMT holdings at the end of the previous quarter. Our calculations also showed that BXMT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
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Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when 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 recent hedge fund action encompassing Blackstone Mortgage Trust Inc (NYSE:BXMT).
Hedge fund activity in Blackstone Mortgage Trust Inc (NYSE:BXMT)
At Q4's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in BXMT a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Blackstone Mortgage Trust Inc (NYSE:BXMT) was held by Millennium Management, which reported holding $15.4 million worth of stock at the end of September. It was followed by Millennium Management with a $10.7 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Winton Capital Management. In terms of the portfolio weights assigned to each position LDR Capital allocated the biggest weight to Blackstone Mortgage Trust Inc (NYSE:BXMT), around 1.73% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, setting aside 0.21 percent of its 13F equity portfolio to BXMT.
Since Blackstone Mortgage Trust Inc (NYSE:BXMT) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies that elected to cut their entire stakes heading into Q4. Interestingly, Dmitry Balyasny's Balyasny Asset Management dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $4.1 million in stock, and Howard Marks's Oaktree Capital Management was right behind this move, as the fund dropped about $2 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Blackstone Mortgage Trust Inc (NYSE:BXMT). These stocks are Axis Capital Holdings Limited (NYSE:AXS), Portland General Electric Company (NYSE:POR), Cree, Inc. (NASDAQ:CREE), and Pan American Silver Corp. (NASDAQ:PAAS). All of these stocks' market caps resemble BXMT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXS,34,942398,2 POR,27,408157,0 CREE,25,283504,2 PAAS,30,447399,7 Average,29,520365,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $65 million in BXMT's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Cree, Inc. (NASDAQ:CREE) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Blackstone Mortgage Trust Inc (NYSE:BXMT) is even less popular than CREE. Hedge funds dodged a bullet by taking a bearish stance towards BXMT. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately BXMT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BXMT investors were disappointed as the stock returned -54.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
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.