Hedge Funds Are Dumping Black Hills Corporation (BKH)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. In this article we look at what those investors think of Black Hills Corporation (NYSE:BKH).

Black Hills Corporation (NYSE:BKH) investors should pay attention to a decrease in enthusiasm from smart money in recent months. BKH was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with BKH positions at the end of the previous quarter. Our calculations also showed that BKH 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.

Donald Sussman of Paloma Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the latest hedge fund action regarding Black Hills Corporation (NYSE:BKH).

Hedge fund activity in Black Hills Corporation (NYSE:BKH)

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in BKH a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Black Hills Corporation (NYSE:BKH), with a stake worth $111.8 million reported as of the end of September. Trailing Renaissance Technologies was GAMCO Investors, which amassed a stake valued at $13.1 million. AQR Capital Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Black Hills Corporation (NYSE:BKH), around 0.88% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to BKH.

Seeing as Black Hills Corporation (NYSE:BKH) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Peter J. Hark’s Shelter Harbor Advisors dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $7.9 million in stock, and Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital was right behind this move, as the fund said goodbye to about $3.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 6 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Black Hills Corporation (NYSE:BKH). These stocks are Virtu Financial Inc (NASDAQ:VIRT), Herbalife Nutrition Ltd. (NYSE:HLF), IAA, Inc. (NYSE:IAA), and Enphase Energy Inc (NASDAQ:ENPH). All of these stocks’ market caps are similar to BKH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $826 million. That figure was $170 million in BKH’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand Virtu Financial Inc (NASDAQ:VIRT) is the least popular one with only 17 bullish hedge fund positions. Black Hills Corporation (NYSE:BKH) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately BKH wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BKH investors were disappointed as the stock returned -12.1% during the second quarter 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.

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