Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Black Knight, Inc. (NYSE:BKI) was in 45 hedge funds' portfolios at the end of June. BKI has seen an increase in hedge fund sentiment of late. There were 40 hedge funds in our database with BKI positions at the end of the previous quarter. Our calculations also showed that BKI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the recent hedge fund action encompassing Black Knight, Inc. (NYSE:BKI).
How have hedgies been trading Black Knight, Inc. (NYSE:BKI)?
Heading into the third quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in BKI a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, D. E. Shaw's D E Shaw has the largest position in Black Knight, Inc. (NYSE:BKI), worth close to $181.6 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Andrew Immerman and Jeremy Schiffman of Palestra Capital Management, with a $134.3 million position; 3.9% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish consist of Ken Griffin's Citadel Investment Group, Dan Loeb's Third Point and Yen Liow's Aravt Global.
As one would reasonably expect, some big names have jumped into Black Knight, Inc. (NYSE:BKI) headfirst. Newbrook Capital Advisors, managed by Robert Boucai, created the largest position in Black Knight, Inc. (NYSE:BKI). Newbrook Capital Advisors had $22 million invested in the company at the end of the quarter. Principal Global Investors's Columbus Circle Investors also made a $11 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Black Knight, Inc. (NYSE:BKI). We will take a look at Lamb Weston Holdings, Inc. (NYSE:LW), Huaneng Power International Inc (NYSE:HNP), Targa Resources Corp (NYSE:TRGP), and Credit Acceptance Corp. (NASDAQ:CACC). This group of stocks' market caps match BKI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LW,29,518866,-12 HNP,3,2350,0 TRGP,18,206424,-5 CACC,27,1103970,-1 Average,19.25,457903,-4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $1016 million in BKI's case. Lamb Weston Holdings, Inc. (NYSE:LW) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Black Knight, Inc. (NYSE:BKI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BKI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BKI were disappointed as the stock returned 1.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.