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 (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. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards H&R Block, Inc. (NYSE:HRB).
H&R Block, Inc. (NYSE:HRB) has seen an increase in support from the world’s most elite money managers lately. HRB was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 23 hedge funds in our database with HRB positions at the end of the previous quarter. Our calculations also showed that HRB 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 was able to identify in advance a select group of hedge fund holdings that 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.
Dmitry Balyasny of Balyasny Asset Management
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 let’s take a look at the key hedge fund action surrounding H&R Block, Inc. (NYSE:HRB).
Hedge fund activity in H&R Block, Inc. (NYSE:HRB)
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in HRB over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in H&R Block, Inc. (NYSE:HRB) was held by D E Shaw, which reported holding $147.7 million worth of stock at the end of September. It was followed by AQR Capital Management with a $76.2 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and GAMCO Investors. In terms of the portfolio weights assigned to each position Cognios Capital allocated the biggest weight to H&R Block, Inc. (NYSE:HRB), around 0.85% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, dishing out 0.45 percent of its 13F equity portfolio to HRB.
Now, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, created the most valuable position in H&R Block, Inc. (NYSE:HRB). Millennium Management had $24.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $6.1 million position during the quarter. The other funds with brand new HRB positions are Michael Gelband’s ExodusPoint Capital, Matthew Tewksbury’s Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as H&R Block, Inc. (NYSE:HRB) but similarly valued. These stocks are Intercorp Financial Services Inc. (NYSE:IFS), J2 Global Inc (NASDAQ:JCOM), Copa Holdings, S.A. (NYSE:CPA), and Armstrong World Industries, Inc. (NYSE:AWI). This group of stocks’ market values resemble HRB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IFS | 2 | 46514 | -1 |
| JCOM | 23 | 302223 | 4 |
| CPA | 22 | 402542 | 1 |
| AWI | 24 | 550330 | -6 |
| Average | 17.75 | 325402 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $421 million in HRB’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks H&R Block, Inc. (NYSE:HRB) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately HRB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HRB were disappointed as the stock returned -40.3% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.
