Hedge Funds Cautiously Watching Sleep Number Corporation (SNBR)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Sleep Number Corporation (NASDAQ:SNBR) based on those filings.

Sleep Number Corporation (NASDAQ:SNBR) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of March. At the end of this article we will also compare SNBR to other stocks including NV5 Holdings Inc (NASDAQ:NVEE), ConnectOne Bancorp Inc (NASDAQ:CNOB), and Bed Bath & Beyond Inc. (NASDAQ:BBBY) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens of Arrowstreet 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. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the fresh hedge fund action regarding Sleep Number Corporation (NASDAQ:SNBR).

Hedge fund activity in Sleep Number Corporation (NASDAQ:SNBR)

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SNBR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sleep Number Corporation (NASDAQ:SNBR) was held by D E Shaw, which reported holding $17.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $14.9 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Giverny Capital. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Sleep Number Corporation (NASDAQ:SNBR), around 0.53% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to SNBR.

Due to the fact that Sleep Number Corporation (NASDAQ:SNBR) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few hedge funds that decided to sell off their entire stakes by the end of the first quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest stake of the 750 funds watched by Insider Monkey, totaling about $3.8 million in stock. Donald Sussman’s fund, Paloma Partners, also dropped its stock, about $0.9 million worth. These moves are important to note, 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 Sleep Number Corporation (NASDAQ:SNBR). We will take a look at NV5 Holdings Inc (NASDAQ:NVEE), ConnectOne Bancorp Inc (NASDAQ:CNOB), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and RadNet Inc. (NASDAQ:RDNT). This group of stocks’ market valuations are closest to SNBR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $65 million in SNBR’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand NV5 Holdings Inc (NASDAQ:NVEE) is the least popular one with only 9 bullish hedge fund positions. Sleep Number Corporation (NASDAQ:SNBR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on SNBR as the stock returned 121.8% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.