How Do Hedge Funds Feel About BankUnited (BKU)?

The market has been volatile as the Federal Reserve winds down its easy money policies. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25th and the end of October. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of BankUnited (NYSE:BKU) and find out how it is affected by the hedge funds’ moves.

Is BankUnited a buy right now? Prominent investors are in a bearish mood. The number of long hedge fund positions has gone down by 2 in recent months. BKU was in 14 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with BKU positions at the end of the previous quarter. At the end of this article we will also compare BKU to other stocks, including Tenet Healthcare Corp (NYSE:THC), Buffalo Wild Wings (NASDAQ:BWLD), and Allegiant Travel Company (NASDAQ:ALGT) to get a better sense of its popularity.

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If you’d ask most traders, hedge funds are seen as worthless, old investment vehicles of years past. While there are more than 8000 funds in operation at the moment, our experts choose to focus on the aristocrats of this group, around 700 funds. These hedge fund managers command the lion’s share of the hedge fund industry’s total capital, and by keeping an eye on their best stock picks, Insider Monkey has found several investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, let’s analyze the recent action surrounding BankUnited (NYSE:BKU).

How are hedge funds trading BankUnited (NYSE:BKU)?

Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the number one position in BankUnited (NYSE:BKU). Citadel Investment Group has a $72.6 million position in the stock, comprising 0.1% of its 13F portfolio. On Citadel’s heels is Anand Parekh of Alyeska Investment Group, with a $72.4 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Mark Lee’s Forest Hill Capital, D. E. Shaw’s D E Shaw and Chuck Royce’s Royce & Associates.

Seeing as BankUnited (NYSE:BKU) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few hedge funds that elected to cut their full holdings in the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of the 700 funds tracked by Insider Monkey, worth close to $15.3 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also cut its stock, about $12.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as BankUnited (NYSE:BKU) but similarly valued. We will take a look at Tenet Healthcare Corp (NYSE:THC), Buffalo Wild Wings (NASDAQ:BWLD), Allegiant Travel Company (NASDAQ:ALGT), and Symetra Financial Corporation (NYSE:SYA). This group of stocks’ market valuations are closest to BKU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
THC 44 1183229 -4
BWLD 21 357437 -5
ALGT 26 458443 10
SYA 22 290724 6

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $572 million. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table, while Buffalo Wild Wings (NASDAQ:BWLD) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks BankUnited (NYSE:BKU) is even less popular than BWLD and the hedge funds have amassed stakes with a total value of $347 million in the company. So it seems that hedge funds aren’t fond of this stock in relation to other companies covered in this article, but it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.