At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards BlackRock, Inc. (NYSE:BLK) at the end of the second quarter and determine whether the smart money was really smart about this stock.
BlackRock, Inc. (NYSE:BLK) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. BlackRock, Inc. (NYSE:BLK) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. Our calculations also showed that BLK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Today there are tons of gauges investors employ to appraise their stock investments. A couple of the less utilized gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top fund managers can outperform their index-focused peers by a significant amount (see the details here).
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to review the fresh hedge fund action regarding BlackRock, Inc. (NYSE:BLK).
How have hedgies been trading BlackRock, Inc. (NYSE:BLK)?
At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in BLK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Markel Gayner Asset Management, which reported holding $119.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $102.1 million position. Other investors bullish on the company included Adage Capital Management, Junto Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 8.42% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, dishing out 4.11 percent of its 13F equity portfolio to BLK.
Since BlackRock, Inc. (NYSE:BLK) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their full holdings by the end of the second quarter. Interestingly, Robert Pohly’s Samlyn Capital sold off the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $84.4 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $27.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as BlackRock, Inc. (NYSE:BLK) but similarly valued. We will take a look at Toronto-Dominion Bank (NYSE:TD), S&P Global Inc. (NYSE:SPGI), BP plc (NYSE:BP), Diageo plc (NYSE:DEO), Intuit Inc. (NASDAQ:INTU), ServiceNow Inc (NYSE:NOW), and American Express Company (NYSE:AXP). This group of stocks’ market caps resemble BLK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TD | 15 | 155444 | -4 |
| SPGI | 71 | 3024689 | -2 |
| BP | 27 | 736756 | -4 |
| DEO | 20 | 653839 | 3 |
| INTU | 53 | 1735265 | -1 |
| NOW | 86 | 4949673 | 1 |
| AXP | 54 | 17635296 | -3 |
| Average | 46.6 | 4127280 | -1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.6 hedge funds with bullish positions and the average amount invested in these stocks was $4127 million. That figure was $702 million in BLK’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. BlackRock, Inc. (NYSE:BLK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BLK is 43.1. 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 negative signal and 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately BLK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BLK investors were disappointed as the stock returned 9.2% since Q2 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
