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Did Hedge Funds Drop The Ball On Dumping Blucora Inc (BCOR) ?

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 Blucora Inc (NASDAQ:BCOR).

Is Blucora Inc (NASDAQ:BCOR) ready to rally soon? Hedge funds are becoming less confident. The number of bullish hedge fund positions retreated by 5 in recent months. Our calculations also showed that BCOR isn’t among the 30 most popular stocks among hedge funds. BCOR was in 11 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with BCOR positions at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

BlueMountain Capital Management's Returns, AUM and Holdings

Let’s take a peek at the key hedge fund action surrounding Blucora Inc (NASDAQ:BCOR).

How are hedge funds trading Blucora Inc (NASDAQ:BCOR)?

At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in BCOR a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

BCOR_apr2019

The largest stake in Blucora Inc (NASDAQ:BCOR) was held by Renaissance Technologies, which reported holding $71.1 million worth of stock at the end of December. It was followed by D E Shaw with a $15.2 million position. Other investors bullish on the company included Harvest Capital Strategies, AQR Capital Management, and GAMCO Investors.

Since Blucora Inc (NASDAQ:BCOR) has experienced a decline in interest from the smart money, we can see that there was a specific group of fund managers who sold off their positions entirely in the third quarter. Interestingly, Chuck Royce’s Royce & Associates dropped the biggest stake of all the hedgies watched by Insider Monkey, worth close to $5.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $3.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 5 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Blucora Inc (NASDAQ:BCOR) but similarly valued. These stocks are NovaGold Resources Inc. (NYSE:NG), Virtusa Corporation (NASDAQ:VRTU), Warrior Met Coal, Inc. (NYSE:HCC), and The Liberty Braves Group (NASDAQ:BATRA). This group of stocks’ market valuations resemble BCOR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NG 19 164597 6
VRTU 14 57508 -2
HCC 33 450296 -2
BATRA 10 64390 2
Average 19 184198 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $106 million in BCOR’s case. Warrior Met Coal, Inc.(NYSE:HCC) is the most popular stock in this table. On the other hand The Liberty Braves Group (NASDAQ:BATRA) is the least popular one with only 10 bullish hedge fund positions. Blucora Inc (NASDAQ:BCOR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on BCOR as the stock returned 29.6% and outperformed the market by an even larger margin.

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

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