Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Black Knight, Inc. (NYSE:BKI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Black Knight, Inc. (NYSE:BKI) a bargain? Investors who are in the know are turning less bullish. The number of long hedge fund positions shrunk by 14 in recent months. Our calculations also showed that BKI 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
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 glance at the key hedge fund action surrounding Black Knight, Inc. (NYSE:BKI).
How are hedge funds trading Black Knight, Inc. (NYSE:BKI)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the previous quarter. By comparison, 36 hedge funds held shares or bullish call options in BKI 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.
More specifically, D E Shaw was the largest shareholder of Black Knight, Inc. (NYSE:BKI), with a stake worth $165.3 million reported as of the end of September. Trailing D E Shaw was Third Point, which amassed a stake valued at $122.5 million. Wallace R. Weitz & Co., Aravt Global, and Echo Street 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 Banbury Partners allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 6.49% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, designating 6.48 percent of its 13F equity portfolio to BKI.
Since Black Knight, Inc. (NYSE:BKI) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds that elected to cut their entire stakes in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group sold off the biggest stake of all the hedgies watched by Insider Monkey, totaling about $125.3 million in stock. Andrew Immerman and Jeremy Schiffman’s fund, Palestra Capital Management, also sold off its stock, about $89.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 14 funds in the third 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 NICE Ltd. (NASDAQ:NICE), Apache Corporation (NYSE:APA), DXC Technology Company (NYSE:DXC), and Sarepta Therapeutics Inc (NASDAQ:SRPT). All of these stocks’ market caps are similar to BKI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NICE | 19 | 425511 | 2 |
| APA | 34 | 608891 | 6 |
| DXC | 47 | 1481279 | 6 |
| SRPT | 42 | 1108005 | 6 |
| Average | 35.5 | 905922 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $906 million. That figure was $530 million in BKI’s case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand NICE Ltd. (NASDAQ:NICE) is the least popular one with only 19 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on BKI as the stock returned -10.7% during the same time period and outperformed the market by an even larger margin.
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.
