Did Hedge Funds Make The Right Call On BlackRock, Inc. (BLK)?

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 thoughtBlackRock, Inc. (NYSE:BLK) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

BlackRock, Inc. (NYSE:BLK) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. BLK was in 38 hedge funds’ portfolios at the end of March. There were 43 hedge funds in our database with BLK positions at the end of the previous quarter. Our calculations also showed that BLK 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a peek at the new hedge fund action surrounding BlackRock, Inc. (NYSE:BLK).

How have hedgies been trading BlackRock, Inc. (NYSE:BLK)?

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BLK over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Markel Gayner Asset Management, which reported holding $96.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $88.4 million position. Other investors bullish on the company included Samlyn Capital, Adage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Shanda Asset Management allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 5.08% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, earmarking 2.81 percent of its 13F equity portfolio to BLK.

Judging by the fact that BlackRock, Inc. (NYSE:BLK) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who sold off their positions entirely heading into Q4. Intriguingly, Ray Dalio’s Bridgewater Associates dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $16.1 million in stock. Usman Waheed’s fund, Strycker View Capital, also cut its stock, about $11.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out 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 Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Cigna Corporation (NYSE:CI), PetroChina Company Limited (NYSE:PTR), and Lowe’s Companies, Inc. (NYSE:LOW). This group of stocks’ market values are similar to BLK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $1806 million. That figure was $678 million in BLK’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 7 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on BLK, though not to the same extent, as the stock returned 24.5% during the second quarter and outperformed the market.

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