Did Hedge Funds Make The Right Call On BankUnited Inc (BKU) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtBankUnited Inc (NYSE:BKU) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

BankUnited Inc (NYSE:BKU) investors should be aware of a decrease in hedge fund sentiment recently. BKU was in 18 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with BKU holdings at the end of the previous quarter. Our calculations also showed that BKU isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a gander at the key hedge fund action encompassing BankUnited Inc (NYSE:BKU).

Hedge fund activity in BankUnited Inc (NYSE:BKU)

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BKU over the last 18 quarters. 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, Diamond Hill Capital, managed by Ric Dillon, holds the number one position in BankUnited Inc (NYSE:BKU). Diamond Hill Capital has a $78.4 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $35 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Steve Cohen’s Point72 Asset Management, Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to BankUnited Inc (NYSE:BKU), around 2.48% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, setting aside 0.53 percent of its 13F equity portfolio to BKU.

Due to the fact that BankUnited Inc (NYSE:BKU) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds that slashed their entire stakes last quarter. Interestingly,  Renaissance Technologies said goodbye to the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $12.9 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dropped about $2.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to BankUnited Inc (NYSE:BKU). These stocks are PolyOne Corporation (NYSE:POL), International Bancshares Corp (NASDAQ:IBOC), Baozun Inc (NASDAQ:BZUN), and NetScout Systems, Inc. (NASDAQ:NTCT). All of these stocks’ market caps match BKU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $172 million in BKU’s case. PolyOne Corporation (NYSE:POL) is the most popular stock in this table. On the other hand Baozun Inc (NASDAQ:BZUN) is the least popular one with only 12 bullish hedge fund positions. BankUnited Inc (NYSE:BKU) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately BKU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BKU were disappointed as the stock returned 0.1% during the same time period 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 so far this year.

Disclosure: None. This article was originally published at Insider Monkey.