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Hedge Funds Have Never Been This Bullish On Bright Horizons Family Solutions Inc (BFAM)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Bright Horizons Family Solutions Inc (NYSE:BFAM).

Bright Horizons Family Solutions Inc (NYSE:BFAM) investors should be aware of an increase in enthusiasm from smart money recently. 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 below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the new hedge fund action regarding Bright Horizons Family Solutions Inc (NYSE:BFAM).

Hedge fund activity in Bright Horizons Family Solutions Inc (NYSE:BFAM)

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in BFAM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BFAM_dec2019

More specifically, Marshall Wace was the largest shareholder of Bright Horizons Family Solutions Inc (NYSE:BFAM), with a stake worth $58.5 million reported as of the end of September. Trailing Marshall Wace was Select Equity Group, which amassed a stake valued at $34.9 million. AQR Capital Management, D E Shaw, and Bishop Rock Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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 portfolio. Lee Capital Management is also relatively very bullish on the stock, designating 1.28 percent of its 13F equity portfolio to BFAM.

As aggregate interest increased, specific money managers were breaking ground themselves. Renaissance Technologies created 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 initiated a $5.5 million position during the quarter. The following funds were also among the new BFAM investors: 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 check out hedge fund activity in other stocks – not necessarily in the same industry as Bright Horizons Family Solutions Inc (NYSE:BFAM) but similarly valued. We will take a look at Brookfield Property Partners LP (NASDAQ:BPY), Santander Consumer USA Holdings Inc (NYSE:SC), HollyFrontier Corporation (NYSE:HFC), and Kimco Realty Corp (NYSE:KIM). This group of stocks’ market caps are similar to BFAM’s market cap.

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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately BFAM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BFAM were disappointed as the stock returned -1.3% during the fourth quarter (through the end of November) 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 this year.

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

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