Here’s Why ClearBridge Investments Trimmed its Stake in Blackstone Group (BX)

ClearBridge Investments, an investment management firm, published its “Dividend Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Dividend Strategy underperformed its S&P 500 Index benchmark during the second quarter. On an absolute basis, the Strategy had gains in 10 of 11 sectors in which it was invested for the quarter. The financials, IT, and industrials sectors mainly contributed to Fund performance, while the communication services, consumer discretionary, and utilities were the main detractors. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned The Blackstone Group Inc. (NYSE: BX), and discussed its stance on the firm. The Blackstone Group Inc. is a New York, New York-based alternative investment management company, that currently has a $69.5 billion market capitalization. BX delivered a 52.21% return since the beginning of the year, extending its 12-month revenues to 78.07%. The stock closed at $98.65 per share on July 14, 2021.

Here is what ClearBridge Investments has to say about The Blackstone Group Inc. in its Q2 2021 investor letter:

“We funded the shift primarily with trims in Blackstone following big gains in this name. Blackstone is a long-term holding that have been and remain core holdings. During the quarter, however, we took gains and resized the positions to reflect their current risk-reward post strong increases in the stocks.

Blackstone has delivered phenomenal performance for many years but until the last year or two its success went unrewarded by investors. This began to change when it converted from a partnership to a C-corp and was turbocharged in the second quarter as the stock became eligible for inclusion in broad market indexes, which will drive greater structural demand for the shares. While we continue to be very constructive on the company and anticipate remaining significant holders for years to come, considering the 50% year-to-date rise in the shares, we shaved down the position.”

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Based on our calculations, The Blackstone Group Inc. (NYSE: BX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. The Blackstone Group Inc. was in 49 hedge fund portfolios at the end of the first quarter of 2021, compared to 54 funds in the fourth quarter of 2020. BX delivered a 23.85% return in the past 3 months.

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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

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