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Hedge Funds Are Betting On Black Knight, Inc. (BKI)

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Black Knight, Inc. (NYSE:BKI) changed recently.

Black Knight, Inc. (NYSE:BKI) investors should pay attention to an increase in enthusiasm from smart money in recent months. BKI was in 36 hedge funds’ portfolios at the end of the third quarter of 2018. There were 32 hedge funds in our database with BKI holdings at the end of the previous quarter. Our calculations also showed that BKI isn’t among the 30 most popular stocks among hedge funds.

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 the 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 18 percentage points since May 2014 through December 3, 2018 (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.

D. E. Shaw

Let’s analyze the recent hedge fund action encompassing Black Knight, Inc. (NYSE:BKI).

How are hedge funds trading Black Knight, Inc. (NYSE:BKI)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BKI over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BKI_dec2018

Among these funds, D E Shaw held the most valuable stake in Black Knight, Inc. (NYSE:BKI), which was worth $117 million at the end of the third quarter. On the second spot was Bodenholm Capital which amassed $61.9 million worth of shares. Moreover, Aravt Global, Melvin Capital Management, and Millennium Management were also bullish on Black Knight, Inc. (NYSE:BKI), allocating a large percentage of their portfolios to this stock.

Consequently, specific money managers have jumped into Black Knight, Inc. (NYSE:BKI) headfirst. Renaissance Technologies, managed by Jim Simons, created the biggest position in Black Knight, Inc. (NYSE:BKI). Renaissance Technologies had $16.4 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are George Zweig, Shane Haas and Ravi Chander’s Signition LP, Alec Litowitz and Ross Laser’s Magnetar Capital, and David Andre and Astro Teller’s Cerebellum Capital.

Let’s also examine hedge fund activity in other stocks similar to Black Knight, Inc. (NYSE:BKI). We will take a look at Wheaton Precious Metals Corp. (NYSE:WPM), Graco Inc. (NYSE:GGG), Roku, Inc. (NASDAQ:ROKU), and Israel Chemicals Ltd. (NYSE:ICL). All of these stocks’ market caps are closest to BKI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPM 22 264281 6
GGG 22 219077 6
ROKU 31 788092 8
ICL 8 40795 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. That figure was $593 million in BKI’s case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Black Knight, Inc. (NYSE:BKI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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