How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Black Knight, Inc. (NYSE:BKI).
Black Knight, Inc. (NYSE:BKI) has seen an increase in hedge fund sentiment of late. Black Knight, Inc. (NYSE:BKI) was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 45. Our calculations also showed that BKI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dan Loeb of Third Point
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to go over the recent hedge fund action encompassing Black Knight, Inc. (NYSE:BKI).
Do Hedge Funds Think BKI Is A Good Stock To Buy Now?
At the end of December, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in BKI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the biggest position in Black Knight, Inc. (NYSE:BKI), worth close to $217.7 million, amounting to 0.2% of its total 13F portfolio. The second most bullish fund manager is Third Point, led by Dan Loeb, holding a $154.6 million position; 1.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Greg Poole’s Echo Street Capital Management and James Parsons’s Junto Capital Management. In terms of the portfolio weights assigned to each position Banbury Partners allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 7.69% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, setting aside 7.3 percent of its 13F equity portfolio to BKI.
Now, specific money managers were leading the bulls’ herd. Islet Management, managed by Joseph Samuels, created the most outsized position in Black Knight, Inc. (NYSE:BKI). Islet Management had $8.8 million invested in the company at the end of the quarter. Joseph Cornell’s Bluegrass Capital Partners also made a $7.1 million investment in the stock during the quarter. The following funds were also among the new BKI investors: Donald Sussman’s Paloma Partners, Usman Waheed’s Strycker View Capital, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now review hedge fund activity in other stocks similar to Black Knight, Inc. (NYSE:BKI). We will take a look at Natura &Co Holding S.A. (NYSE:NTCO), Sunrun Inc (NASDAQ:RUN), iQIYI, Inc. (NASDAQ:IQ), VICI Properties Inc. (NYSE:VICI), Principal Financial Group Inc (NYSE:PFG), Eastman Chemical Company (NYSE:EMN), and Discovery Inc. (NASDAQ:DISCA). This group of stocks’ market values are closest to BKI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTCO | 4 | 82302 | 0 |
| RUN | 48 | 3008231 | 19 |
| IQ | 30 | 1048707 | 12 |
| VICI | 38 | 970234 | -2 |
| PFG | 26 | 117451 | 1 |
| EMN | 31 | 133838 | 4 |
| DISCA | 28 | 226741 | -1 |
| Average | 29.3 | 798215 | 4.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $798 million. That figure was $995 million in BKI’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 4 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BKI is 82.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately BKI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BKI were disappointed as the stock returned -18% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
