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 Skyline Champion Corporation (NYSE:SKY) based on those filings.
Skyline Champion Corporation (NYSE:SKY) investors should pay attention to a decrease in support from the world’s most elite money managers of late. Our calculations also showed that SKY 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).
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 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 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 stocks that are in our short portfolio.
Richard Chilton of Chilton Investment Company
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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. With all of this in mind we’re going to take a peek at the latest hedge fund action regarding Skyline Champion Corporation (NYSE:SKY).
Hedge fund activity in Skyline Champion Corporation (NYSE:SKY)
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in SKY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, MAK Capital One held the most valuable stake in Skyline Champion Corporation (NYSE:SKY), which was worth $106.8 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $29.1 million worth of shares. Adage Capital Management, 12th Street Asset Management, and Newtyn Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MAK Capital One allocated the biggest weight to Skyline Champion Corporation (NYSE:SKY), around 34.99% of its 13F portfolio. Venator Capital Management is also relatively very bullish on the stock, earmarking 5.79 percent of its 13F equity portfolio to SKY.
Due to the fact that Skyline Champion Corporation (NYSE:SKY) has witnessed falling interest from the smart money, it’s easy to see that there was a specific group of money managers who were dropping their positions entirely in the third quarter. Interestingly, Jeffrey Gendell’s Tontine Asset Management dumped the biggest investment of the 750 funds followed by Insider Monkey, totaling close to $7.6 million in stock, and Julian Allen’s Spitfire Capital was right behind this move, as the fund dumped about $5.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Skyline Champion Corporation (NYSE:SKY). We will take a look at Zymeworks Inc. (NYSE:ZYME), Inspire Medical Systems, Inc. (NYSE:INSP), Winnebago Industries, Inc. (NYSE:WGO), and Sogou Inc. (NYSE:SOGO). This group of stocks’ market caps are similar to SKY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZYME | 24 | 667083 | 8 |
| INSP | 21 | 325421 | 2 |
| WGO | 23 | 230640 | 8 |
| SOGO | 11 | 13397 | 7 |
| Average | 19.75 | 309135 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $287 million in SKY’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Skyline Champion Corporation (NYSE:SKY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately SKY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SKY were disappointed as the stock returned -54.6% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
