In this article we will check out the progression of hedge fund sentiment towards Sequential Brands Group Inc (NASDAQ:SQBG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Sequential Brands Group Inc (NASDAQ:SQBG) shareholders have witnessed a decrease in enthusiasm from smart money of late. Our calculations also showed that SQBG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 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 view the recent hedge fund action surrounding Sequential Brands Group Inc (NASDAQ:SQBG).
What have hedge funds been doing with Sequential Brands Group Inc (NASDAQ:SQBG)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in SQBG a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Prescott Group Capital Management held the most valuable stake in Sequential Brands Group Inc (NASDAQ:SQBG), which was worth $1.7 million at the end of the third quarter. On the second spot was Diker Management which amassed $0 million worth of shares. Tudor Investment Corp was 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 Prescott Group Capital Management allocated the biggest weight to Sequential Brands Group Inc (NASDAQ:SQBG), around 0.86% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, dishing out 0.0017 percent of its 13F equity portfolio to SQBG.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 683 Capital Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SQBG as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sequential Brands Group Inc (NASDAQ:SQBG) but similarly valued. These stocks are Endologix, Inc. (NASDAQ:ELGX), Genetic Technologies Limited (NASDAQ:GENE), SIFCO Industries, Inc. (NYSE:SIF), and BSQUARE Corporation (NASDAQ:BSQR). All of these stocks’ market caps resemble SQBG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ELGX | 4 | 1281 | -1 |
| GENE | 1 | 321 | 0 |
| SIF | 4 | 1161 | 0 |
| BSQR | 1 | 882 | -1 |
| Average | 2.5 | 911 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $2 million in SQBG’s case. Endologix, Inc. (NASDAQ:ELGX) is the most popular stock in this table. On the other hand Genetic Technologies Limited (NASDAQ:GENE) is the least popular one with only 1 bullish hedge fund positions. Sequential Brands Group Inc (NASDAQ:SQBG) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately SQBG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SQBG were disappointed as the stock returned -14.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
