Were Hedge Funds Right About Piling Into BlackRock, Inc. (BLK)?

In this article we are going to use hedge fund sentiment as a tool and determine whether BlackRock, Inc. (NYSE:BLK) 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.

BlackRock, Inc. (NYSE:BLK) shareholders have witnessed an increase in hedge fund interest in recent months. BlackRock, Inc. (NYSE:BLK) was in 53 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 47. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BLK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 let’s take a gander at the fresh hedge fund action encompassing BlackRock, Inc. (NYSE:BLK).

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

At the end of December, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in BLK a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Markel Gayner Asset Management, which reported holding $158.9 million worth of stock at the end of December. It was followed by Junto Capital Management with a $151.7 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Ivy Lane Capital allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 14.85% of its 13F portfolio. Heard Capital is also relatively very bullish on the stock, earmarking 6.97 percent of its 13F equity portfolio to BLK.

As aggregate interest increased, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in BlackRock, Inc. (NYSE:BLK). Point72 Asset Management had $48.4 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also made a $21.5 million investment in the stock during the quarter. The following funds were also among the new BLK investors: Renaissance Technologies, Robert W. Koehn’s Ivy Lane Capital, and Ray Dalio’s Bridgewater Associates.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as BlackRock, Inc. (NYSE:BLK) but similarly valued. We will take a look at Raytheon Technologies Corp (NYSE:RTX), ServiceNow Inc (NYSE:NOW), HSBC Holdings plc (NYSE:HSBC), Intuit Inc. (NASDAQ:INTU), The Toronto-Dominion Bank (NYSE:TD), Sea Limited (NYSE:SE), and 3M Company (NYSE:MMM). This group of stocks’ market valuations match BLK’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 59.7 hedge funds with bullish positions and the average amount invested in these stocks was $3858 million. That figure was $1156 million in BLK’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. BlackRock, Inc. (NYSE:BLK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BLK is 59.3. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on BLK as the stock returned 14.2% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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