Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Blackstone Mortgage Trust Inc (NYSE:BXMT).
Blackstone Mortgage Trust Inc (NYSE:BXMT) was in 15 hedge funds' portfolios at the end of the first quarter of 2019. BXMT investors should pay attention to a decrease in hedge fund interest recently. There were 16 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.
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.
Let's review the new hedge fund action encompassing Blackstone Mortgage Trust Inc (NYSE:BXMT).
What does smart money think about Blackstone Mortgage Trust Inc (NYSE:BXMT)?
At Q1's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BXMT over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Clough Capital Partners was the largest shareholder of Blackstone Mortgage Trust Inc (NYSE:BXMT), with a stake worth $31 million reported as of the end of March. Trailing Clough Capital Partners was Renaissance Technologies, which amassed a stake valued at $19.2 million. Citadel Investment Group, Millennium Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Blackstone Mortgage Trust Inc (NYSE:BXMT) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who sold off their entire stakes by the end of the third quarter. It's worth mentioning that John Armitage's Egerton Capital Limited said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, worth close to $40.8 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dumped its stock, about $1.9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Blackstone Mortgage Trust Inc (NYSE:BXMT). These stocks are Essent Group Ltd (NYSE:ESNT), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP), ALLETE Inc (NYSE:ALE), and SINA Corp (NASDAQ:SINA). 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 ESNT,27,309747,-1 PNFP,15,87922,0 ALE,18,246797,0 SINA,24,474870,3 Average,21,279834,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $102 million in BXMT's case. Essent Group Ltd (NYSE:ESNT) is the most popular stock in this table. On the other hand Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Blackstone Mortgage Trust Inc (NYSE:BXMT) is even less popular than PNFP. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on BXMT, though not to the same extent, as the stock returned 5.9% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.