Here is What Hedge Funds Think About Bright Horizons Family Solutions Inc (BFAM)

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in the third quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Bright Horizons Family Solutions Inc (NYSE:BFAM) in this article.

In the first nine months of 2015, Bright Horizons Family Solutions Inc (NYSE:BFAM)’s stock advanced by 36%. This made investors more optimistic and the number of long hedge fund bets inched up by 4 during the third quarter. At the end of this article we will also compare BFAM to other stocks, including Eaton Vance Corp (NYSE:EV), West Pharmaceutical Services Inc. (NYSE:WST), and STERIS plc (NYSE:STE) to get a better sense of its popularity.

According to most shareholders, hedge funds are perceived as unimportant, outdated investment tools of years past. While there are greater than 8000 funds in operation today, We look at the leaders of this group, approximately 700 funds. Most estimates calculate that this group of people handle the lion’s share of the hedge fund industry’s total asset base, and by following their first-class picks, Insider Monkey has unsheathed many investment strategies that have historically defeated the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points annually for a decade in their back tests.

With all of this in mind, let’s view the fresh action surrounding Bright Horizons Family Solutions Inc (NYSE:BFAM).

What does the smart money think about Bright Horizons Family Solutions Inc (NYSE:BFAM)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alan Fournier’s Pennant Capital Management has the largest position in Bright Horizons Family Solutions Inc (NYSE:BFAM), worth close to $118.6 million, amounting to 2.5% of its total 13F portfolio. The second most bullish fund is John Ku’s Manor Road Capital Partners, with a $35.7 million position; 7% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism include Leighton Welch’s Welch Capital Partners, Jim Simons’ Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Bright Horizons Family Solutions Inc (NYSE:BFAM). Balyasny Asset Management had $5.4 million invested in the company at the end of the quarter. Chao Ku’s Nine Chapters Capital Management also made a $0.8 million investment in the stock during the quarter. The other funds with brand new BFAM positions are Richard Chilton’s Chilton Investment Company, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Bright Horizons Family Solutions Inc (NYSE:BFAM) but similarly valued. We will take a look at Eaton Vance Corp (NYSE:EV), West Pharmaceutical Services Inc. (NYSE:WST), STERIS plc (NYSE:STE), and ON Semiconductor Corp (NASDAQ:ON). This group of stocks’ market values match BFAM’s market value.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $190 million in BFAM’s case. ON Semiconductor Corp (NASDAQ:ON) is the most popular stock in this table. On the other hand West Pharmaceutical Services Inc. (NYSE:WST) is the least popular one with only 10 bullish hedge fund positions. Bright Horizons Family Solutions Inc (NYSE:BFAM) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ON might be a better candidate to consider a long position.