As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Sally Beauty Holdings, Inc. (NYSE:SBH).
Sally Beauty Holdings, Inc. (NYSE:SBH) investors should pay attention to an increase in enthusiasm from smart money in recent months. Sally Beauty Holdings, Inc. (NYSE:SBH) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistic is 28. There were 19 hedge funds in our database with SBH positions at the end of the first quarter. Our calculations also showed that SBH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a look at the fresh hedge fund action surrounding Sally Beauty Holdings, Inc. (NYSE:SBH).
Do Hedge Funds Think SBH Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in SBH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Sally Beauty Holdings, Inc. (NYSE:SBH), with a stake worth $42.1 million reported as of the end of June. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $29.4 million. Renaissance Technologies, GAMCO Investors, and Six Columns Capital 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 Stormborn Capital Management allocated the biggest weight to Sally Beauty Holdings, Inc. (NYSE:SBH), around 2.42% of its 13F portfolio. Six Columns Capital is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to SBH.
As one would reasonably expect, specific money managers have jumped into Sally Beauty Holdings, Inc. (NYSE:SBH) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Sally Beauty Holdings, Inc. (NYSE:SBH). Arrowstreet Capital had $29.4 million invested in the company at the end of the quarter. Brad Stephens’s Six Columns Capital also made a $11 million investment in the stock during the quarter. The other funds with brand new SBH positions are Israel Englander’s Millennium Management, Brad Stephens’s Six Columns Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks similar to Sally Beauty Holdings, Inc. (NYSE:SBH). We will take a look at Niu Technologies (NASDAQ:NIU), Gibraltar Industries Inc (NASDAQ:ROCK), Instil Bio, Inc. (NASDAQ:TIL), Jack in the Box Inc. (NASDAQ:JACK), The Buckle, Inc. (NYSE:BKE), Manchester United PLC (NYSE:MANU), and Mueller Industries, Inc. (NYSE:MLI). This group of stocks’ market values are closest to SBH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NIU | 13 | 186938 | -1 |
| ROCK | 17 | 82296 | -3 |
| TIL | 14 | 561110 | -7 |
| JACK | 29 | 227139 | -1 |
| BKE | 25 | 196951 | 3 |
| MANU | 12 | 31402 | -4 |
| MLI | 17 | 227384 | -3 |
| Average | 18.1 | 216174 | -2.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $144 million in SBH’s case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Manchester United PLC (NYSE:MANU) is the least popular one with only 12 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SBH is 61. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately SBH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SBH were disappointed as the stock returned -27.4% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Sally Beauty Holdings Inc. (NYSE:SBH)
Follow Sally Beauty Holdings Inc. (NYSE:SBH)
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Disclosure: None. This article was originally published at Insider Monkey.
