“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Stepan Company (NYSE:SCL).
Stepan Company (NYSE:SCL) was in 16 hedge funds’ portfolios at the end of March. SCL shareholders have witnessed an increase in hedge fund interest of late. There were 12 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.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to analyze the fresh hedge fund action encompassing Stepan Company (NYSE:SCL).
How are hedge funds trading Stepan Company (NYSE:SCL)?
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SCL over the last 15 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 $29.8 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $7.7 million position. Other investors bullish on the company included GLG Partners, Two Sigma Advisors, and AQR Capital Management.
As aggregate interest increased, some big names were breaking ground themselves. Quantinno Capital, managed by Hoon Kim, assembled the largest position in Stepan Company (NYSE:SCL). Quantinno Capital had $0.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new SCL investors: Chuck Royce’s Royce & Associates and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s also examine hedge fund activity in other stocks similar to Stepan Company (NYSE:SCL). These stocks are AnaptysBio, Inc. (NASDAQ:ANAB), Tanger Factory Outlet Centers Inc. (NYSE:SKT), SM Energy Company (NYSE:SM), and New Fortress Energy LLC (NASDAQ:NFE). This group of stocks’ market valuations match SCL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANAB | 20 | 708803 | 0 |
| SKT | 15 | 92722 | 1 |
| SM | 21 | 304913 | 1 |
| NFE | 4 | 42616 | 4 |
| Average | 15 | 287264 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $287 million. That figure was $51 million in SCL’s case. SM Energy Company (NYSE:SM) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 4 bullish hedge fund positions. Stepan Company (NYSE:SCL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on SCL, though not to the same extent, as the stock returned 5.2% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
