We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Bright Horizons Family Solutions Inc (NYSE:BFAM) in this article.
Bright Horizons Family Solutions Inc (NYSE:BFAM) has experienced an increase in hedge fund sentiment lately. BFAM was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 30 hedge funds in our database with BFAM holdings at the end of the previous quarter. Our calculations also showed that BFAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 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.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the new hedge fund action encompassing Bright Horizons Family Solutions Inc (NYSE:BFAM).
Hedge fund activity in Bright Horizons Family Solutions Inc (NYSE:BFAM)
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BFAM over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Bright Horizons Family Solutions Inc (NYSE:BFAM) was held by Select Equity Group, which reported holding $136.9 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $85.5 million position. Other investors bullish on the company included Citadel Investment Group, Bishop Rock Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Bright Horizons Family Solutions Inc (NYSE:BFAM), around 4.31% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, dishing out 1.94 percent of its 13F equity portfolio to BFAM.
With a general bullishness amongst the heavyweights, some big names have jumped into Bright Horizons Family Solutions Inc (NYSE:BFAM) headfirst. Steadfast Capital Management, managed by Robert Pitts, assembled the largest position in Bright Horizons Family Solutions Inc (NYSE:BFAM). Steadfast Capital Management had $6.2 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.7 million investment in the stock during the quarter. The following funds were also among the new BFAM investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Qing Li’s Sciencast Management, and Jinghua Yan’s TwinBeech Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Bright Horizons Family Solutions Inc (NYSE:BFAM) but similarly valued. These stocks are Kimco Realty Corp (NYSE:KIM), Store Capital Corporation (NYSE:STOR), James Hardie Industries plc (NYSE:JHX), and Athene Holding Ltd. (NYSE:ATH). All of these stocks’ market caps resemble BFAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KIM | 16 | 183873 | 4 |
| STOR | 20 | 957353 | 0 |
| JHX | 3 | 9636 | 0 |
| ATH | 35 | 1368504 | -8 |
| Average | 18.5 | 629842 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $344 million in BFAM’s case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 3 bullish hedge fund positions. Bright Horizons Family Solutions Inc (NYSE:BFAM) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately BFAM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BFAM were disappointed as the stock returned -37.2% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
