Were Hedge Funds Right About BlackRock (BLK)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards BlackRock, Inc. (NYSE:BLK).

Is BlackRock, Inc. (NYSE:BLK) the right investment to pursue these days? Prominent investors are becoming less confident. The number of long hedge fund positions shrunk by 4 in recent months. Our calculations also showed that BLK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BLK was in 43 hedge funds’ portfolios at the end of December. There were 47 hedge funds in our database with BLK holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

Now let’s take a glance at the latest hedge fund action encompassing BlackRock, Inc. (NYSE:BLK).

What have hedge funds been doing with BlackRock, Inc. (NYSE:BLK)?

Heading into the first quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BLK over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in BlackRock, Inc. (NYSE:BLK) was held by Citadel Investment Group, which reported holding $221.2 million worth of stock at the end of September. It was followed by Junto Capital Management with a $164.6 million position. Other investors bullish on the company included Markel Gayner Asset Management, Adage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Junto Capital Management allocated the biggest weight to BlackRock, Inc. (NYSE:BLK), around 7.76% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, dishing out 5.42 percent of its 13F equity portfolio to BLK.

Because BlackRock, Inc. (NYSE:BLK) has experienced declining sentiment from the smart money, logic holds that there is a sect of funds that elected to cut their full holdings last quarter. Intriguingly, Peter Seuss’s Prana Capital Management dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $27.7 million in stock. David Harding’s fund, Winton Capital Management, also cut its stock, about $21.5 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BlackRock, Inc. (NYSE:BLK) but similarly valued. These stocks are Anthem Inc (NYSE:ANTM), Cigna Corporation (NYSE:CI), Truist Financial Corporation (NYSE:TFC), and Tesla Inc. (NASDAQ:TSLA). This group of stocks’ market values are similar to BLK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANTM 71 4833772 7
CI 72 4118635 7
TFC 35 875715 4
TSLA 51 3043687 19
Average 57.25 3217952 9.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.25 hedge funds with bullish positions and the average amount invested in these stocks was $3218 million. That figure was $917 million in BLK’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Truist Financial Corporation (NYSE:TFC) is the least popular one with only 35 bullish hedge fund positions. BlackRock, Inc. (NYSE:BLK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on BLK, though not to the same extent, as the stock returned -3% during the same time period and outperformed the market.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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