Were These Hedge Funds Wrong About Selling BlackRock, Inc. (BLK)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding BlackRock, Inc. (NYSE:BLK).

BlackRock, Inc. (NYSE:BLK) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. BlackRock, Inc. (NYSE:BLK) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. Our calculations also showed that BLK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a peek at the recent hedge fund action regarding BlackRock, Inc. (NYSE:BLK).

How are hedge funds trading BlackRock, Inc. (NYSE:BLK)?

At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BLK over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Markel Gayner Asset Management, which reported holding $119.8 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $102.1 million position. Other investors bullish on the company included Adage Capital Management, Junto Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 8.42% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 4.11 percent of its 13F equity portfolio to BLK.

Seeing as BlackRock, Inc. (NYSE:BLK) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that elected to cut their positions entirely in the second quarter. At the top of the heap, Robert Pohly’s Samlyn Capital sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth about $84.4 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $27.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the second quarter.

Let’s now review 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 Toronto-Dominion Bank (NYSE:TD), S&P Global Inc. (NYSE:SPGI), BP plc (NYSE:BP), Diageo plc (NYSE:DEO), Intuit Inc. (NASDAQ:INTU), ServiceNow Inc (NYSE:NOW), and American Express Company (NYSE:AXP). This group of stocks’ market valuations are similar to BLK’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.6 hedge funds with bullish positions and the average amount invested in these stocks was $4127 million. That figure was $702 million in BLK’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 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 43.1. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on BLK as the stock returned 10.8% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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