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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Steelcase Inc. (NYSE:SCS).
Is Steelcase Inc. (NYSE:SCS) worth your attention right now? Money managers are taking a bullish view. The number of bullish hedge fund positions went up by 6 lately. Our calculations also showed that SCS 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). SCS was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with SCS holdings at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
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. With all of this in mind we’re going to take a look at the fresh hedge fund action encompassing Steelcase Inc. (NYSE:SCS).
Hedge fund activity in Steelcase Inc. (NYSE:SCS)
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in SCS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in Steelcase Inc. (NYSE:SCS), worth close to $38.5 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is GLG Partners, led by Noam Gottesman, holding a $21.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Richard S. Pzena’s Pzena Investment Management, Ken Griffin’s Citadel Investment Group and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Steelcase Inc. (NYSE:SCS), around 0.85% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, designating 0.81 percent of its 13F equity portfolio to SCS.
Consequently, specific money managers were leading the bulls’ herd. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, created the largest position in Steelcase Inc. (NYSE:SCS). Algert Coldiron Investors had $2.8 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $1.2 million position during the quarter. The other funds with brand new SCS positions are Renee Yao’s Neo Ivy Capital, James Dondero’s Highland Capital Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Steelcase Inc. (NYSE:SCS) but similarly valued. These stocks are Kontoor Brands, Inc. (NASDAQ:KTB), M.D.C. Holdings, Inc. (NYSE:MDC), Aircastle Limited (NYSE:AYR), and Independent Bank Group Inc (NASDAQ:IBTX). This group of stocks’ market valuations match SCS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KTB | 14 | 102169 | -7 |
| MDC | 17 | 107469 | -2 |
| AYR | 20 | 156897 | 6 |
| IBTX | 23 | 104488 | 10 |
| Average | 18.5 | 117756 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $164 million in SCS’s case. Independent Bank Group Inc (NASDAQ:IBTX) is the most popular stock in this table. On the other hand Kontoor Brands, Inc. (NASDAQ:KTB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Steelcase Inc. (NYSE:SCS) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately SCS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SCS were disappointed as the stock returned -43.5% during the first two and a half months of 2020 (through March 25th) 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.
