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Were Hedge Funds Right About The Blackstone Group (BX)?

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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded The Blackstone Group Inc. (NYSE:BX) based on those filings.

Is The Blackstone Group Inc. (NYSE:BX) the right pick for your portfolio? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund bets inched up by 5 recently. Our calculations also showed that BX 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).

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 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 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.

John Armitage Egerton Capital

John Armitage of Egerton Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the key hedge fund action surrounding The Blackstone Group Inc. (NYSE:BX).

What have hedge funds been doing with The Blackstone Group Inc. (NYSE:BX)?

Heading into the first quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BX over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Blackstone Group Inc. (NYSE:BX) was held by Egerton Capital Limited, which reported holding $381 million worth of stock at the end of September. It was followed by HMI Capital with a $122.8 million position. Other investors bullish on the company included GQG Partners, D E Shaw, and 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 9.79% of its 13F portfolio. Pennant Capital Management is also relatively very bullish on the stock, setting aside 8.26 percent of its 13F equity portfolio to BX.

Consequently, key money managers have been driving this bullishness. Heard Capital, managed by William Heard, created the most outsized position in The Blackstone Group Inc. (NYSE:BX). Heard Capital had $16.5 million invested in the company at the end of the quarter. Pasco Alfaro / Richard Tumure’s Miura Global Management also made a $8.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Travis Cocke’s Voss Capital, Joseph Samuels’s Islet Management, and Matthew Hulsizer’s PEAK6 Capital Management.

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. These stocks are T-Mobile US, Inc. (NASDAQ:TMUS), The Southern Company (NYSE:SO), S&P Global Inc. (NYSE:SPGI), and Duke Energy Corporation (NYSE:DUK). This group of stocks’ market valuations are similar to BX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TMUS 61 1396533 -3
SO 30 866429 -3
SPGI 76 3764961 1
DUK 37 1534613 5
Average 51 1890634 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 51 hedge funds with bullish positions and the average amount invested in these stocks was $1891 million. That figure was $1193 million in BX’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 30 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 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 BX, though not to the same extent, as the stock returned -8.3% 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.

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