Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Bright Horizons Family Solutions Inc (NYSE:BFAM)? The smart money sentiment can provide an answer to this question.
Bright Horizons Family Solutions Inc (NYSE:BFAM) was in 18 hedge funds’ portfolios at the end of the first quarter of 2019. BFAM has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 16 hedge funds in our database with BFAM positions at the end of the previous quarter. Our calculations also showed that bfam isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most investors, hedge funds are seen as underperforming, outdated financial tools of yesteryear. While there are over 8000 funds in operation at present, Our researchers look at the top tier of this group, approximately 750 funds. These money managers shepherd the majority of the hedge fund industry’s total asset base, and by keeping track of their finest investments, Insider Monkey has unearthed various investment strategies that have historically outpaced the market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Paul Marshall of Marshall Wace
Let’s take a look at the new hedge fund action surrounding Bright Horizons Family Solutions Inc (NYSE:BFAM).
Hedge fund activity in Bright Horizons Family Solutions Inc (NYSE:BFAM)
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BFAM over the last 15 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Bright Horizons Family Solutions Inc (NYSE:BFAM), which was worth $129.5 million at the end of the first quarter. On the second spot was Marshall Wace LLP which amassed $89.7 million worth of shares. Moreover, D E Shaw, Bishop Rock Capital, and AQR Capital Management were also bullish on Bright Horizons Family Solutions Inc (NYSE:BFAM), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Bright Horizons Family Solutions Inc (NYSE:BFAM). Citadel Investment Group had $2.8 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $2 million position during the quarter. The following funds were also among the new BFAM investors: Chuck Royce’s Royce & Associates, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks similar to Bright Horizons Family Solutions Inc (NYSE:BFAM). We will take a look at Masimo Corporation (NASDAQ:MASI), CDK Global Inc (NASDAQ:CDK), Service Corporation International (NYSE:SCI), and Xerox Corporation (NYSE:XRX). This group of stocks’ market values resemble BFAM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MASI | 34 | 485427 | 1 |
| CDK | 23 | 548582 | -2 |
| SCI | 20 | 527994 | 3 |
| XRX | 33 | 1378808 | -11 |
| Average | 27.5 | 735203 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $735 million. That figure was $294 million in BFAM’s case. Masimo Corporation (NASDAQ:MASI) is the most popular stock in this table. On the other hand Service Corporation International (NYSE:SCI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Bright Horizons Family Solutions Inc (NYSE:BFAM) is even less popular than SCI. Hedge funds clearly dropped the ball on BFAM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on BFAM as the stock returned 7% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
