Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards SEI Investments Company (NASDAQ:SEIC).
Is SEI Investments Company (NASDAQ:SEIC) a healthy stock for your portfolio? Prominent investors are in an optimistic mood. The number of bullish hedge fund bets went up by 3 in recent months. Our calculations also showed that SEIC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). SEIC was in 29 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with SEIC holdings at the end of the previous quarter.
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Tom Gayner of Markel Gayner Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let’s take a look at the new hedge fund action regarding SEI Investments Company (NASDAQ:SEIC).
Hedge fund activity in SEI Investments Company (NASDAQ:SEIC)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SEIC over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in SEI Investments Company (NASDAQ:SEIC), which was worth $73 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $56.5 million worth of shares. Renaissance Technologies, GLG Partners, and Markel Gayner Asset Management were 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 Goodnow Investment Group allocated the biggest weight to SEI Investments Company (NASDAQ:SEIC), around 3.09% of its 13F portfolio. Prana Capital Management is also relatively very bullish on the stock, designating 1.17 percent of its 13F equity portfolio to SEIC.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Prana Capital Management, managed by Peter Seuss, assembled the most valuable position in SEI Investments Company (NASDAQ:SEIC). Prana Capital Management had $8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $4.8 million investment in the stock during the quarter. The other funds with brand new SEIC positions are Ray Dalio’s Bridgewater Associates, Qing Li’s Sciencast Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SEI Investments Company (NASDAQ:SEIC) but similarly valued. These stocks are Crown Holdings, Inc. (NYSE:CCK), Henry Schein, Inc. (NASDAQ:HSIC), Mohawk Industries, Inc. (NYSE:MHK), and Amdocs Limited (NASDAQ:DOX). All of these stocks’ market caps are closest to SEIC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCK | 58 | 1378457 | 16 |
| HSIC | 36 | 1379739 | 12 |
| MHK | 40 | 1437266 | 5 |
| DOX | 26 | 623312 | 0 |
| Average | 40 | 1204694 | 8.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1205 million. That figure was $352 million in SEIC’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Amdocs Limited (NASDAQ:DOX) is the least popular one with only 26 bullish hedge fund positions. SEI Investments Company (NASDAQ:SEIC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately SEIC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SEIC investors were disappointed as the stock returned -30.6% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
