While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Service Corporation International (NYSE:SCI).
Service Corporation International (NYSE:SCI) has experienced a huge decrease in support from the world’s most elite money managers of late, being one of 10 Stocks Hedge Funds Ditched in Q3 Just Before the Market Crushed Them. Unsurprisingly, it also failed to rank among the 30 Most Popular Stocks Among Hedge Funds, with just 15 of the funds tracked by Insider Monkey’s database remaining shareholders of the stock.
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 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
What have hedge funds been doing with Service Corporation International (NYSE:SCI)?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 40% tumble from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in SCI at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in Service Corporation International (NYSE:SCI), which was worth $456.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $39.7 million worth of shares. Moreover, Two Sigma Advisors, D E Shaw, and AQR Capital Management were also bullish on Service Corporation International (NYSE:SCI), allocating a large percentage of their portfolios to this stock.
Since Service Corporation International (NYSE:SCI) has experienced declining sentiment from the smart money, it’s easy to see that there was a specific group of hedge funds who were dropping their positions entirely last quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $18.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $18 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 10 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Service Corporation International (NYSE:SCI) but similarly valued. We will take a look at Micro Focus Intl PLC (NYSE:MFGP), News Corp (NASDAQ:NWS), bluebird bio Inc (NASDAQ:BLUE), and HD Supply Holdings Inc (NASDAQ:HDS). This group of stocks’ market values are closest to SCI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFGP | 10 | 177625 | -4 |
| NWS | 10 | 87742 | -7 |
| BLUE | 34 | 321018 | 0 |
| HDS | 38 | 1434098 | 5 |
| Average | 23 | 505 | -1.5 |
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 $505 million. That figure was $573 million in SCI’s case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 10 bullish hedge fund positions. Service Corporation International (NYSE:SCI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HDS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
