Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Bright Horizons Family Solutions Inc (NYSE:BFAM) based on that data.
Bright Horizons Family Solutions Inc (NYSE:BFAM) was in 27 hedge funds’ portfolios at the end of September. BFAM has experienced an increase in hedge fund sentiment in recent months. There were 20 hedge funds in our database with BFAM holdings at the end of the previous quarter. Our calculations also showed that BFAM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a look at the recent hedge fund action regarding Bright Horizons Family Solutions Inc (NYSE:BFAM).
Hedge fund activity in Bright Horizons Family Solutions Inc (NYSE:BFAM)
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BFAM over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Marshall Wace, managed by Paul Marshall and Ian Wace, holds the biggest position in Bright Horizons Family Solutions Inc (NYSE:BFAM). Marshall Wace has a $58.5 million position in the stock, comprising 0.5% of its 13F portfolio. The second most bullish fund manager is Select Equity Group, led by Robert Joseph Caruso, holding a $34.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Cliff Asness’s AQR Capital Management, David E. Shaw’s D E Shaw and Thomas Rigo’s Bishop Rock Capital. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Bright Horizons Family Solutions Inc (NYSE:BFAM), around 4.72% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, setting aside 1.28 percent of its 13F equity portfolio to BFAM.
As one would reasonably expect, some big names were breaking ground themselves. Renaissance Technologies initiated the most outsized position in Bright Horizons Family Solutions Inc (NYSE:BFAM). Renaissance Technologies had $14.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $5.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Thomas Lee’s Lee Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Bright Horizons Family Solutions Inc (NYSE:BFAM). These stocks are Brookfield Property Partners LP (NASDAQ:BPY), Santander Consumer USA Holdings Inc (NYSE:SC), HollyFrontier Corporation (NYSE:HFC), and Kimco Realty Corporation (NYSE:KIM). This group of stocks’ market values are closest to BFAM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BPY | 8 | 32207 | 2 |
| SC | 23 | 795446 | -3 |
| HFC | 27 | 544455 | 2 |
| KIM | 11 | 100029 | -8 |
| Average | 17.25 | 368034 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $217 million in BFAM’s case. HollyFrontier Corporation (NYSE:HFC) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 8 bullish hedge fund positions. Bright Horizons Family Solutions Inc (NYSE:BFAM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BFAM, though not to the same extent, as the stock returned 37.3% during 2019 (as of 12/23) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
