Were Hedge Funds Right About Black Knight, Inc. (BKI)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Black Knight, Inc. (NYSE:BKI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Black Knight, Inc. (NYSE:BKI) investors should be aware of a decrease in hedge fund interest in recent months. Black Knight, Inc. (NYSE:BKI) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistic is 45. There were 40 hedge funds in our database with BKI positions at the end of the first quarter. Our calculations also showed that BKI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are a large number of tools market participants employ to analyze publicly traded companies. A pair of the best tools are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outpace their index-focused peers by a significant margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Eric Mandelblatt of Soroban Capital Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to go over the latest hedge fund action regarding Black Knight, Inc. (NYSE:BKI).

Do Hedge Funds Think BKI Is A Good Stock To Buy Now?

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BKI over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of Black Knight, Inc. (NYSE:BKI), with a stake worth $176 million reported as of the end of June. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $149.5 million. Echo Street Capital Management, Third Point, and Millennium 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 Aravt Global allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 10.27% of its 13F portfolio. ROAM Global Management is also relatively very bullish on the stock, setting aside 8.62 percent of its 13F equity portfolio to BKI.

Seeing as Black Knight, Inc. (NYSE:BKI) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that slashed their full holdings heading into Q3. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest investment of all the hedgies tracked by Insider Monkey, totaling about $43.2 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $8.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Black Knight, Inc. (NYSE:BKI). These stocks are Ozon Holdings PLC (NASDAQ:OZON), Dr. Reddy’s Laboratories Limited (NYSE:RDY), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Tapestry, Inc. (NYSE:TPR), The Mosaic Company (NYSE:MOS), Companhia Siderurgica Nacional (NYSE:SID), and Snap-on Incorporated (NYSE:SNA). This group of stocks’ market values are similar to BKI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $438 million. That figure was $995 million in BKI’s case. The Mosaic Company (NYSE:MOS) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 11 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BKI is 54.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately BKI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BKI were disappointed as the stock returned -9.9% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.