Hedge Funds Have Never Been This Bullish On The Blackstone Group Inc. (BX)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds’ top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 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 The Blackstone Group Inc. (NYSE:BX).

Is The Blackstone Group Inc. (NYSE:BX) a buy right now? Prominent investors are getting more optimistic. The number of long hedge fund bets moved up by 11 recently. Our calculations also showed that BX isn’t among the 30 most popular stocks among hedge funds. BX was in 41 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with BX positions at the end of the previous quarter.

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 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 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

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 look at the key hedge fund action regarding The Blackstone Group Inc. (NYSE:BX).

What does smart money think about The Blackstone Group Inc. (NYSE:BX)?

Heading into the fourth quarter of 2019, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 37% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BX over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BX Positions

Of the funds tracked by Insider Monkey, John Armitage’s Egerton Capital Limited has the most valuable position in The Blackstone Group Inc. (NYSE:BX), worth close to $614.3 million, amounting to 4.4% of its total 13F portfolio. Sitting at the No. 2 spot is Rajiv Jain of GQG Partners, with a $328.2 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Mick Hellman’s HMI Capital, David E. Shaw’s D E Shaw and Richard Chilton’s Chilton Investment Company. In terms of the portfolio weights assigned to each position HMI Capital allocated the biggest weight to The Blackstone Group Inc. (NYSE:BX), around 13.15% of its portfolio. Tiger Management is also relatively very bullish on the stock, dishing out 7.7 percent of its 13F equity portfolio to BX.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Egerton Capital Limited, managed by John Armitage, assembled the most outsized position in The Blackstone Group Inc. (NYSE:BX). Egerton Capital Limited had $614.3 million invested in the company at the end of the quarter. Rajiv Jain’s GQG Partners also initiated a $328.2 million position during the quarter. The other funds with new positions in the stock are David E. Shaw’s D E Shaw, John W. Rogers’s Ariel Investments, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Blackstone Group Inc. (NYSE:BX) but similarly valued. We will take a look at Crown Castle International Corp. (REIT) (NYSE:CCI), CIGNA Corporation (NYSE:CI), Ecolab Inc. (NYSE:ECL), and Boston Scientific Corporation (NYSE:BSX). This group of stocks’ market values resemble BX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCI 34 1849678 1
CI 62 3080624 14
ECL 38 2169031 11
BSX 48 2372367 -2
Average 45.5 2367925 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.5 hedge funds with bullish positions and the average amount invested in these stocks was $2368 million. That figure was $1572 million in BX’s case. CIGNA Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Crown Castle International Corp. (REIT) (NYSE:CCI) is the least popular one with only 34 bullish hedge fund positions. The Blackstone Group Inc. (NYSE:BX) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on BX, though not to the same extent, as the stock returned 5.9% during the fourth quarter (through 11/22) and outperformed the market.

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