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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of BankUnited (NYSE:BKU) based on that data.
BankUnited (NYSE:BKU) has experienced an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that BKU 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.
Ric Dillon of Diamond Hill Capital
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. Now we’re going to take a look at the recent hedge fund action surrounding BankUnited (NYSE:BKU).
How are hedge funds trading BankUnited (NYSE:BKU)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the third quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in BKU a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in BankUnited (NYSE:BKU), which was worth $125.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $93.4 million worth of shares. Millennium Management, Point72 Asset Management, and AQR Capital Management 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 Forest Hill Capital allocated the biggest weight to BankUnited (NYSE:BKU), around 1.63% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, earmarking 0.63 percent of its 13F equity portfolio to BKU.
Now, key hedge funds have been driving this bullishness. Forest Hill Capital, managed by Mark Lee, assembled the biggest position in BankUnited (NYSE:BKU). Forest Hill Capital had $4.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $1.2 million position during the quarter. The other funds with brand new BKU positions are Bruce Kovner’s Caxton Associates LP, Paul Tudor Jones’s Tudor Investment Corp, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as BankUnited (NYSE:BKU) but similarly valued. These stocks are AVX Corporation (NYSE:AVX), TopBuild Corp (NYSE:BLD), MFA Financial, Inc. (NYSE:MFA), and Rexnord Corp (NYSE:RXN). This group of stocks’ market valuations are similar to BKU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVX | 14 | 102611 | 1 |
| BLD | 29 | 177380 | 8 |
| MFA | 19 | 84511 | 0 |
| RXN | 25 | 334197 | 3 |
| Average | 21.75 | 174675 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $356 million in BKU’s case. TopBuild Corp (NYSE:BLD) is the most popular stock in this table. On the other hand AVX Corporation (NYSE:AVX) is the least popular one with only 14 bullish hedge fund positions. BankUnited (NYSE:BKU) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately BKU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BKU were disappointed as the stock returned -49.8% 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.
