Hedge Funds Are Dumping BlackRock, Inc. (BLK) Even Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about BlackRock, Inc. (NYSE:BLK) in this article.

BlackRock, Inc. (NYSE:BLK) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2019. BLK investors should pay attention to a decrease in hedge fund sentiment recently. There were 47 hedge funds in our database with BLK positions at the end of the previous quarter. Our calculations also showed that BLK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a look at the recent hedge fund action encompassing BlackRock, Inc. (NYSE:BLK).

What have hedge funds been doing with BlackRock, Inc. (NYSE:BLK)?

At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in BLK a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Citadel Investment Group, which reported holding $221.2 million worth of stock at the end of September. It was followed by Junto Capital Management with a $164.6 million position. Other investors bullish on the company included Markel Gayner Asset Management, Adage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Junto Capital Management allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 7.76% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, setting aside 5.42 percent of its 13F equity portfolio to BLK.

Since BlackRock, Inc. (NYSE:BLK) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely by the end of the third quarter. Intriguingly, Peter Seuss’s Prana Capital Management said goodbye to the largest position of the 750 funds watched by Insider Monkey, totaling close to $27.7 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund cut about $21.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to BlackRock, Inc. (NYSE:BLK). These stocks are Anthem Inc (NYSE:ANTM), Cigna Corporation (NYSE:CI), Truist Financial Corporation (NYSE:TFC), and Tesla Inc. (NASDAQ:TSLA). All of these stocks’ market caps are closest to BLK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.25 hedge funds with bullish positions and the average amount invested in these stocks was $3218 million. That figure was $917 million in BLK’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Truist Financial Corporation (NYSE:TFC) is the least popular one with only 35 bullish hedge fund positions. BlackRock, Inc. (NYSE:BLK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on BLK, though not to the same extent, as the stock returned -13.6% during the same time period and outperformed the market.

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