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Were Hedge Funds Right About Buying Blackstone Mortgage Trust Inc (BXMT)?

Is Blackstone Mortgage Trust Inc (NYSE:BXMT) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Blackstone Mortgage Trust Inc (NYSE:BXMT) was in 20 hedge funds’ portfolios at the end of June. BXMT has seen an increase in enthusiasm from smart money recently. There were 15 hedge funds in our database with BXMT positions at the end of the previous quarter. Our calculations also showed that BXMT isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Jeffrey Talpins Element Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the fresh hedge fund action regarding Blackstone Mortgage Trust Inc (NYSE:BXMT).

Hedge fund activity in Blackstone Mortgage Trust Inc (NYSE:BXMT)

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BXMT over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

BXMT_oct2019

More specifically, Citadel Investment Group was the largest shareholder of Blackstone Mortgage Trust Inc (NYSE:BXMT), with a stake worth $41.2 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $22.7 million. Clough Capital Partners, Millennium Management, and Laurion Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Element Capital Management, managed by Jeffrey Talpins, established the most valuable position in Blackstone Mortgage Trust Inc (NYSE:BXMT). Element Capital Management had $3.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2.7 million investment in the stock during the quarter. The following funds were also among the new BXMT investors: D. E. Shaw’s D E Shaw, Richard Driehaus’s Driehaus Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Blackstone Mortgage Trust Inc (NYSE:BXMT) but similarly valued. These stocks are Chegg Inc (NYSE:CHGG), Moderna, Inc. (NASDAQ:MRNA), Banco Macro SA (NYSE:BMA), and Avnet, Inc. (NASDAQ:AVT). This group of stocks’ market valuations are closest to BXMT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHGG 26 431870 -10
MRNA 18 251106 3
BMA 10 256737 -6
AVT 27 609308 10
Average 20.25 387255 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $144 million in BXMT’s case. Avnet, Inc. (NASDAQ:AVT) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 10 bullish hedge fund positions. Blackstone Mortgage Trust Inc (NYSE:BXMT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on BXMT, though not to the same extent, as the stock returned 2.5% during the third quarter and outperformed the market.

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

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