Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Bluegreen Vacations Corporation (NYSE:BXG).
Bluegreen Vacations Corporation (NYSE:BXG) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare BXG to other stocks including Tufin Software Technologies Ltd. (NYSE:TUFN), Hyster-Yale Materials Handling Inc (NYSE:HY), and Carbonite Inc (NASDAQ:CARB) to get a better sense of its popularity. Our calculations also showed that BXG isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Bluegreen Vacations Corporation (NYSE:BXG).
How have hedgies been trading Bluegreen Vacations Corporation (NYSE:BXG)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 1 hedge funds with a bullish position in BXG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Weiss Asset Management held the most valuable stake in Bluegreen Vacations Corporation (NYSE:BXG), which was worth $22 million at the end of the second quarter. On the second spot was Millennium Management which amassed $3.8 million worth of shares. Moreover, Ancora Advisors, Marshall Wace LLP, and Citadel Investment Group were also bullish on Bluegreen Vacations Corporation (NYSE:BXG), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: GLG Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).
Let’s now take a look at hedge fund activity in other stocks similar to Bluegreen Vacations Corporation (NYSE:BXG). We will take a look at Tufin Software Technologies Ltd. (NYSE:TUFN), Hyster-Yale Materials Handling Inc (NYSE:HY), Carbonite Inc (NASDAQ:CARB), and Wabash National Corporation (NYSE:WNC). This group of stocks’ market values resemble BXG’s market value.
|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 13 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $29 million in BXG’s case. Carbonite Inc (NASDAQ:CARB) is the most popular stock in this table. On the other hand Tufin Software Technologies Ltd. (NYSE:TUFN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Bluegreen Vacations Corporation (NYSE:BXG) is even less popular than TUFN. Hedge funds dodged a bullet by taking a bearish stance towards BXG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BXG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BXG investors were disappointed as the stock returned -18.8% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.