Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Black Knight, Inc. (NYSE:BKI).
Black Knight, Inc. (NYSE:BKI) was in 40 hedge funds’ portfolios at the end of March. The all time high for this statistic is 45. BKI has experienced a decrease in hedge fund interest recently. There were 44 hedge funds in our database with BKI holdings at the end of December. Our calculations also showed that BKI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 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.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey, we scour multiple sources to uncover 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 battery 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. Now we’re going to take a glance at the new hedge fund action encompassing Black Knight, Inc. (NYSE:BKI).
Do Hedge Funds Think BKI Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the fourth quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in BKI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of Black Knight, Inc. (NYSE:BKI), with a stake worth $186.2 million reported as of the end of March. Trailing D E Shaw was Third Point, which amassed a stake valued at $125.8 million. Echo Street Capital Management, Renaissance Technologies, 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 Lionstone Capital Management allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 7.35% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, setting aside 7.2 percent of its 13F equity portfolio to BKI.
Judging by the fact that Black Knight, Inc. (NYSE:BKI) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers who sold off their full holdings last quarter. At the top of the heap, James Parsons’s Junto Capital Management dumped the largest position of all the hedgies watched by Insider Monkey, worth an estimated $59.2 million in stock. Joseph Samuels’s fund, Islet Management, also dropped its stock, about $8.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Black Knight, Inc. (NYSE:BKI) but similarly valued. We will take a look at Invesco Ltd. (NYSE:IVZ), Erie Indemnity Company (NASDAQ:ERIE), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Nordson Corporation (NASDAQ:NDSN), Tapestry, Inc. (NYSE:TPR), Weibo Corp (NASDAQ:WB), and GFL Environmental Inc. (NYSE:GFL). This group of stocks’ market valuations are closest to BKI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IVZ | 32 | 1240235 | -2 |
| ERIE | 12 | 61677 | 5 |
| JKHY | 20 | 197513 | -8 |
| NDSN | 26 | 179502 | 5 |
| TPR | 50 | 1166145 | 1 |
| WB | 12 | 118275 | -1 |
| GFL | 22 | 561202 | 4 |
| Average | 24.9 | 503507 | 0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $504 million. That figure was $822 million in BKI’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 12 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 64.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately BKI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BKI were disappointed as the stock returned 5.8% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Black Knight Inc. (NYSE:BKI)
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Disclosure: None. This article was originally published at Insider Monkey.
