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Did Hedge Funds Make The Right Call On Black Knight, Inc. (BKI) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtBlack Knight, Inc. (NYSE:BKI) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Black Knight, Inc. (NYSE:BKI) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that BKI 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).

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

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing Black Knight, Inc. (NYSE:BKI).

What does smart money think about Black Knight, Inc. (NYSE:BKI)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the fourth quarter of 2019. On the other hand, there were a total of 40 hedge funds with a bullish position in BKI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the biggest position in Black Knight, Inc. (NYSE:BKI). D E Shaw has a $165.5 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Echo Street Capital Management, managed by Greg Poole, which holds a $35.6 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Wallace Weitz’s Wallace R. Weitz & Co., Yen Liow’s Aravt Global and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Banbury Partners allocated the biggest weight to Black Knight, Inc. (NYSE:BKI), around 11.12% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, dishing out 7.01 percent of its 13F equity portfolio to BKI.

As industrywide interest jumped, key hedge funds have jumped into Black Knight, Inc. (NYSE:BKI) headfirst. Highside Global Management, managed by Zach Petrone, initiated the biggest position in Black Knight, Inc. (NYSE:BKI). Highside Global Management had $10.1 million invested in the company at the end of the quarter. Vikas Lunia’s Lunia Capital also made a $7.6 million investment in the stock during the quarter. The other funds with brand new BKI positions are Dmitry Balyasny’s Balyasny Asset Management, Renaissance Technologies, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks similar to Black Knight, Inc. (NYSE:BKI). These stocks are Cypress Semiconductor Corporation (NASDAQ:CY), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Principal Financial Group Inc (NASDAQ:PFG), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks’ market valuations match BKI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CY 46 2083415 10
CHRW 32 247903 8
PFG 27 118834 7
XRAY 30 996924 2
Average 33.75 861769 6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $862 million. That figure was $372 million in BKI’s case. Cypress Semiconductor Corporation (NASDAQ:CY) is the most popular stock in this table. On the other hand Principal Financial Group Inc (NASDAQ:PFG) is the least popular one with only 27 bullish hedge fund positions. Black Knight, Inc. (NYSE:BKI) 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 BKI, though not to the same extent, as the stock returned 25% during the second quarter and outperformed the market.

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