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.
Is Bloomin' Brands Inc (NASDAQ:BLMN) a safe stock to buy now? Money managers are becoming less confident. The number of long hedge fund bets went down by 2 recently. Our calculations also showed that BLMN isn't among the 30 most popular stocks among hedge funds (see the video below). BLMN was in 22 hedge funds' portfolios at the end of June. There were 24 hedge funds in our database with BLMN positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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. Let's take a peek at the recent hedge fund action regarding Bloomin' Brands Inc (NASDAQ:BLMN).
What does smart money think about Bloomin' Brands Inc (NASDAQ:BLMN)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in BLMN a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Bloomin' Brands Inc (NASDAQ:BLMN), with a stake worth $22 million reported as of the end of March. Trailing D E Shaw was GLG Partners, which amassed a stake valued at $19.4 million. Millennium Management, AQR Capital Management, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
Since Bloomin' Brands Inc (NASDAQ:BLMN) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of fund managers that slashed their entire stakes last quarter. It's worth mentioning that Ken Griffin's Citadel Investment Group cut the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $22 million in stock, and Mariko Gordon's Daruma Asset Management was right behind this move, as the fund dumped about $19 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Bloomin' Brands Inc (NASDAQ:BLMN). We will take a look at Alexander & Baldwin Inc (NYSE:ALEX), WestAmerica Bancorporation (NASDAQ:WABC), Knowles Corporation (NYSE:KN), and Mueller Industries, Inc. (NYSE:MLI). This group of stocks' market valuations match BLMN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALEX,10,24038,5 WABC,10,19455,4 KN,22,264759,5 MLI,15,195723,2 Average,14.25,125994,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $112 million in BLMN's case. Knowles Corporation (NYSE:KN) is the most popular stock in this table. On the other hand Alexander & Baldwin Inc (NYSE:ALEX) is the least popular one with only 10 bullish hedge fund positions. Bloomin' Brands Inc (NASDAQ:BLMN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 BLMN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BLMN were disappointed as the stock returned 0.7% 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.