Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in SeaWorld Entertainment Inc (NYSE:SEAS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SEAS to other stocks including Alliance Resource Partners, L.P. (NASDAQ:ARLP), Corrections Corp Of America (NYSE:CXW), and 8×8, Inc. (NASDAQ:EGHT) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of metrics stock traders can use to value stocks. A duo of the less utilized metrics are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outpace the S&P 500 by a healthy amount (see the details here).
Steven Tananbaum of GoldenTree Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the fresh hedge fund action regarding SeaWorld Entertainment Inc (NYSE:SEAS).
Hedge fund activity in SeaWorld Entertainment Inc (NYSE:SEAS)
At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SEAS over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in SeaWorld Entertainment Inc (NYSE:SEAS) was held by Hill Path Capital, which reported holding $716 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $52.8 million position. Other investors bullish on the company included Simcoe Capital Management, Arrowstreet Capital, and Shellback Capital. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 91.04% of its portfolio. Simcoe Capital Management is also relatively very bullish on the stock, designating 11.45 percent of its 13F equity portfolio to SEAS.
Because SeaWorld Entertainment Inc (NYSE:SEAS) has witnessed falling interest from hedge fund managers, it’s easy to see that there is a sect of funds that elected to cut their full holdings last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $42.8 million in call options. Curtis Schenker and Craig Effron’s fund, Scoggin, also said goodbye to its call options, about $26.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SeaWorld Entertainment Inc (NYSE:SEAS) but similarly valued. We will take a look at Alliance Resource Partners, L.P. (NASDAQ:ARLP), CoreCivic, Inc. (NYSE:CXW), 8×8, Inc. (NYSE:EGHT), and Endava plc (NYSE:DAVA). All of these stocks’ market caps match SEAS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARLP | 7 | 89565 | -2 |
| CXW | 17 | 173840 | 3 |
| EGHT | 22 | 452982 | 2 |
| DAVA | 5 | 44044 | -3 |
| Average | 12.75 | 190108 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $999 million in SEAS’s case. 8×8, Inc. (NYSE:EGHT) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on SEAS as the stock returned 11.2% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
