How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sasol Limited (NYSE:SSL).
Hedge fund interest in Sasol Limited (NYSE:SSL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SSL to other stocks including Lamb Weston Holdings, Inc. (NYSE:LW), UGI Corp (NYSE:UGI), and E*TRADE Financial Corporation (NASDAQ:ETFC) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are perceived as worthless, old financial tools of years past. While there are more than 8000 funds trading at the moment, Our researchers choose to focus on the upper echelon of this club, about 750 funds. These money managers preside over bulk of the hedge fund industry’s total capital, and by paying attention to their finest picks, Insider Monkey has brought to light many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jim Simons of Renaissance Technologies
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 check out the recent hedge fund action encompassing Sasol Limited (NYSE:SSL).
What does smart money think about Sasol Limited (NYSE:SSL)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SSL over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Sasol Limited (NYSE:SSL) was held by Renaissance Technologies, which reported holding $7.6 million worth of stock at the end of September. It was followed by Millennium Management with a $7.2 million position. Other investors bullish on the company included Arrowstreet Capital, Pzena Investment Management, and D E Shaw. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to Sasol Limited (NYSE:SSL), around 0.03% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to SSL.
Due to the fact that Sasol Limited (NYSE:SSL) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of fund managers that elected to cut their full holdings in the third quarter. At the top of the heap, Cliff Asness’s AQR Capital Management cut the biggest investment of all the hedgies watched by Insider Monkey, totaling close to $0.6 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dumped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Sasol Limited (NYSE:SSL). We will take a look at Lamb Weston Holdings, Inc. (NYSE:LW), UGI Corp (NYSE:UGI), E*TRADE Financial Corporation (NASDAQ:ETFC), and West Pharmaceutical Services Inc. (NYSE:WST). All of these stocks’ market caps match SSL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LW | 33 | 438896 | 4 |
| UGI | 19 | 317167 | -1 |
| ETFC | 39 | 875017 | -4 |
| WST | 30 | 494330 | 6 |
| Average | 30.25 | 531353 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $531 million. That figure was $26 million in SSL’s case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand UGI Corp (NYSE:UGI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Sasol Limited (NYSE:SSL) is even less popular than UGI. 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 SSL, though not to the same extent, as the stock returned 6% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
