Were Hedge Funds Right About Warming Up To The Blackstone Group Inc. (BX)

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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded The Blackstone Group Inc. (NYSE:BX) and determine whether the smart money was really smart about this stock.

Is The Blackstone Group Inc. (NYSE:BX) a healthy stock for your portfolio? Money managers were in a bullish mood. The number of bullish hedge fund positions inched up by 2 recently. Our calculations also showed that BX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). BX was in 49 hedge funds’ portfolios at the end of the first quarter of 2020. There were 47 hedge funds in our database with BX holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

George Soros

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action surrounding The Blackstone Group Inc. (NYSE:BX).

How are hedge funds trading The Blackstone Group Inc. (NYSE:BX)?

At Q1’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in BX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Southport Management held the most valuable stake in The Blackstone Group Inc. (NYSE:BX), which was worth $478.5 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $235.9 million worth of shares. HMI Capital, Select Equity Group, and D E Shaw 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 HMI Capital allocated the biggest weight to The Blackstone Group Inc. (NYSE:BX), around 10.04% of its 13F portfolio. Tiger Management is also relatively very bullish on the stock, dishing out 9.11 percent of its 13F equity portfolio to BX.

Now, key money managers have jumped into The Blackstone Group Inc. (NYSE:BX) headfirst. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in The Blackstone Group Inc. (NYSE:BX). Citadel Investment Group had $48.4 million invested in the company at the end of the quarter. Bill Ackman’s Pershing Square also initiated a $25 million position during the quarter. The following funds were also among the new BX investors: Lee Ainslie’s Maverick Capital, Farallon Capital, and Ryan Caldwell’s Chiron Investment Management.

Let’s go over hedge fund activity in other stocks similar to The Blackstone Group Inc. (NYSE:BX). We will take a look at ServiceNow Inc (NYSE:NOW), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Equinix Inc (NASDAQ:EQIX), and Advanced Micro Devices, Inc. (NASDAQ:AMD). This group of stocks’ market caps match BX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 61 hedge funds with bullish positions and the average amount invested in these stocks was $2215 million. That figure was $1523 million in BX’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is the least popular one with only 42 bullish hedge fund positions. The Blackstone Group Inc. (NYSE:BX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on BX, though not to the same extent, as the stock returned 25.3% during the second quarter and outperformed the market.

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