How do you pick the next stock to invest in? One way would be to spend hours 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 Debt Strategies Fund, Inc. (NYSE:DSU).
BlackRock Debt Strategies Fund, Inc. (NYSE:DSU) has seen an increase in enthusiasm from smart money in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as TRC Companies, Inc. (NYSE:TRR), MarineMax, Inc. (NYSE:HZO), and Caretrus REIT Inc (NASDAQ:CTRE) to gather more data points.
If you’d ask most stock holders, hedge funds are seen as worthless, outdated financial tools of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers hone in on the crème de la crème of this group, approximately 700 funds. It is estimated that this group of investors shepherd bulk of all hedge funds’ total capital, and by monitoring their top stock picks, Insider Monkey has spotted a number of investment strategies that have historically defeated the market. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points annually for a decade in their back tests.
With all of this in mind, we’re going to view the key action surrounding BlackRock Debt Strategies Fund, Inc. (NYSE:DSU).
How have hedgies been trading BlackRock Debt Strategies Fund, Inc. (NYSE:DSU) ?
Heading into Q4, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. With the smart money’s capital changing hands, there exist a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Boaz Weinstein’s Saba Capital has the largest position in BlackRock Debt Strategies Fund, Inc. (NYSE:DSU), worth close to $55.3 million, amounting to 4.3% of its total 13F portfolio. Coming in second is William Michaelcheck of Mariner Investment Group, with an $1.5 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Mark Coe’s Coe Capital Management, Allan Teh’s Kamunting Street Capital and Murray Stahl’s Horizon Asset Management.
As one would reasonably expect, specific money managers were breaking ground themselves. Mariner Investment Group, managed by William Michaelcheck, established the largest position in BlackRock Debt Strategies Fund, Inc. (NYSE:DSU) . Mariner Investment Group had $1.5 million invested in the company at the end of the quarter. Allan Teh’s Kamunting Street Capital also initiated an $0.1 million position during the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BlackRock Debt Strategies Fund, Inc. (NYSE:DSU) but similarly valued. These stocks are TRC Companies, Inc. (NYSE:TRR), MarineMax, Inc. (NYSE:HZO), Caretrus REIT Inc (NASDAQ:CTRE), and Renewable Energy Group Inc (NASDAQ:REGI). This group of stocks’ market values are similar to DSU’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $58 million in DSU’s case. The least popular stock in this group is Caretrus REIT Inc (NASDAQ:CTRE), while the most popular one is MarineMax, Inc. (NYSE:HZO). With only 5 bullish hedge fund positions BlackRock Debt Strategies Fund, Inc. (NYSE:DSU) is clearly the least popular stock in this particular group. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and try to comprehend the smart money isn’t behind this stock. This doesn’t have to be a bad sign. Although it is possible that hedge funds may think the stock is overvalued and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is advisable.