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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Blackbaud, Inc. (NASDAQ:BLKB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Blackbaud, Inc. (NASDAQ:BLKB) worth your attention right now? Prominent investors are betting on the stock. The number of long hedge fund bets moved up by 2 lately. Our calculations also showed that BLKB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the latest hedge fund action regarding Blackbaud, Inc. (NASDAQ:BLKB).
What have hedge funds been doing with Blackbaud, Inc. (NASDAQ:BLKB)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BLKB over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Blackbaud, Inc. (NASDAQ:BLKB) was held by Echo Street Capital Management, which reported holding $64.4 million worth of stock at the end of September. It was followed by D E Shaw with a $13.8 million position. Other investors bullish on the company included Balyasny Asset Management, GLG Partners, and Gotham Asset Management. In terms of the portfolio weights assigned to each position Echo Street Capital Management allocated the biggest weight to Blackbaud, Inc. (NASDAQ:BLKB), around 0.99% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to BLKB.
As aggregate interest increased, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the most valuable position in Blackbaud, Inc. (NASDAQ:BLKB). Renaissance Technologies had $2.4 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Jinghua Yan’s TwinBeech Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Blackbaud, Inc. (NASDAQ:BLKB). We will take a look at IBERIABANK Corporation (NASDAQ:IBKC), Texas Roadhouse Inc (NASDAQ:TXRH), Q2 Holdings Inc (NYSE:QTWO), and Umpqua Holdings Corp (NASDAQ:UMPQ). This group of stocks’ market caps resemble BLKB’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $103 million in BLKB’s case. IBERIABANK Corporation (NASDAQ:IBKC) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Blackbaud, Inc. (NASDAQ:BLKB) is even less popular than UMPQ. Hedge funds dodged a bullet by taking a bearish stance towards BLKB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately BLKB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BLKB investors were disappointed as the stock returned -37.3% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
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.