The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Stepan Company (NYSE:SCL) and find out how it is affected by hedge funds’ moves.
Stepan Company (NYSE:SCL) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. SCL was in 14 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with SCL positions at the end of the previous quarter. Our calculations also showed that SCL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are perceived as worthless, outdated financial tools of years past. While there are over 8000 funds in operation at present, We hone in on the bigwigs of this club, around 750 funds. These hedge fund managers shepherd bulk of the hedge fund industry’s total capital, and by observing their best stock picks, Insider Monkey has identified a few investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year 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 .
Noam Gottesman of GLG Partners
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 glance at the latest hedge fund action regarding Stepan Company (NYSE:SCL).
What does smart money think about Stepan Company (NYSE:SCL)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SCL over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Stepan Company (NYSE:SCL) was held by Renaissance Technologies, which reported holding $35.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $13.7 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Stepan Company (NYSE:SCL), around 0.39% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to SCL.
As one would reasonably expect, specific money managers have jumped into Stepan Company (NYSE:SCL) headfirst. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable call position in Stepan Company (NYSE:SCL). Citadel Investment Group had $1.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Stepan Company (NYSE:SCL). These stocks are Invesco Mortgage Capital Inc (NYSE:IVR), Innospec Inc. (NASDAQ:IOSP), Zai Lab Limited (NASDAQ:ZLAB), and Amkor Technology, Inc. (NASDAQ:AMKR). This group of stocks’ market caps are similar to SCL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IVR | 17 | 85348 | 6 |
| IOSP | 19 | 98572 | 6 |
| ZLAB | 21 | 264048 | 4 |
| AMKR | 25 | 116243 | 6 |
| Average | 20.5 | 141053 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $62 million in SCL’s case. Amkor Technology, Inc. (NASDAQ:AMKR) is the most popular stock in this table. On the other hand Invesco Mortgage Capital Inc (NYSE:IVR) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Stepan Company (NYSE:SCL) is even less popular than IVR. Hedge funds dodged a bullet by taking a bearish stance towards SCL. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SCL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SCL investors were disappointed as the stock returned 0.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
