Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like South State Corporation (NASDAQ:SSB).
Is South State Corporation (NASDAQ:SSB) an attractive investment now? The smart money is getting more optimistic. The number of bullish hedge fund positions moved up by 3 recently. Our calculations also showed that SSB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SSB was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with SSB holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Lindenbaum of Basswood Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the recent hedge fund action encompassing South State Corporation (NASDAQ:SSB).
Hedge fund activity in South State Corporation (NASDAQ:SSB)
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in SSB a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of South State Corporation (NASDAQ:SSB), with a stake worth $6.9 million reported as of the end of September. Trailing Renaissance Technologies was Forest Hill Capital, which amassed a stake valued at $6 million. Basswood Capital, Millennium Management, and Citadel Investment Group 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 Forest Hill Capital allocated the biggest weight to South State Corporation (NASDAQ:SSB), around 2.12% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to SSB.
As aggregate interest increased, key money managers have jumped into South State Corporation (NASDAQ:SSB) headfirst. ExodusPoint Capital, managed by Michael Gelband, established the biggest position in South State Corporation (NASDAQ:SSB). ExodusPoint Capital had $1.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $0.9 million investment in the stock during the quarter. The only other fund with a brand new SSB position is Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks similar to South State Corporation (NASDAQ:SSB). We will take a look at Wingstop Inc (NASDAQ:WING), Spectrum Brands Holdings, Inc. (NYSE:SPB), California Water Service Group (NYSE:CWT), and Allegheny Technologies Incorporated (NYSE:ATI). This group of stocks’ market values are similar to SSB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WING | 23 | 301040 | -1 |
| SPB | 34 | 784958 | 10 |
| CWT | 15 | 52003 | 3 |
| ATI | 20 | 155971 | -1 |
| Average | 23 | 323493 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $31 million in SSB’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 15 bullish hedge fund positions. South State Corporation (NASDAQ:SSB) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SSB as the stock returned 11.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
