In this article we will check out the progression of hedge fund sentiment towards BankUnited Inc (NYSE:BKU) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
BankUnited Inc (NYSE:BKU) was in 18 hedge funds’ portfolios at the end of March. BKU has seen a decrease in hedge fund interest lately. There were 25 hedge funds in our database with BKU holdings at the end of the previous quarter. Our calculations also showed that BKU 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 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 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.
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding BankUnited Inc (NYSE:BKU).
How have hedgies been trading BankUnited Inc (NYSE:BKU)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the fourth quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in BKU a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in BankUnited Inc (NYSE:BKU) was held by Diamond Hill Capital, which reported holding $78.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $35 million position. Other investors bullish on the company included Point72 Asset Management, AQR Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Forest Hill Capital allocated the biggest weight to BankUnited Inc (NYSE:BKU), around 2.48% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 0.53 percent of its 13F equity portfolio to BKU.
Since BankUnited Inc (NYSE:BKU) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few funds that slashed their full holdings heading into Q4. It’s worth mentioning that Renaissance Technologies said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $12.9 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dropped about $2.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to BankUnited Inc (NYSE:BKU). We will take a look at PolyOne Corporation (NYSE:POL), International Bancshares Corp (NASDAQ:IBOC), Baozun Inc (NASDAQ:BZUN), and NetScout Systems, Inc. (NASDAQ:NTCT). All of these stocks’ market caps resemble BKU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| POL | 28 | 165324 | 4 |
| IBOC | 16 | 96910 | -4 |
| BZUN | 12 | 35603 | -3 |
| NTCT | 12 | 82203 | -8 |
| Average | 17 | 95010 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $172 million in BKU’s case. PolyOne Corporation (NYSE:POL) is the most popular stock in this table. On the other hand Baozun Inc (NASDAQ:BZUN) is the least popular one with only 12 bullish hedge fund positions. BankUnited Inc (NYSE:BKU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately BKU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BKU were disappointed as the stock returned 13.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
