We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Six Flags Entertainment Corp (NYSE:SIX).
Six Flags Entertainment Corp (NYSE:SIX) shareholders have witnessed a decrease in hedge fund interest recently. SIX was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 41 hedge funds in our database with SIX positions at the end of the previous quarter. Our calculations also showed that SIX 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).
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.
Lee Ainslie of Maverick Capital
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. Now we’re going to analyze the latest hedge fund action regarding Six Flags Entertainment Corp (NYSE:SIX).
What have hedge funds been doing with Six Flags Entertainment Corp (NYSE:SIX)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SIX over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, H Partners Management held the most valuable stake in Six Flags Entertainment Corp (NYSE:SIX), which was worth $213.4 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $104.2 million worth of shares. Renaissance Technologies, Two Sigma Advisors, and Balyasny 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 H Partners Management allocated the biggest weight to Six Flags Entertainment Corp (NYSE:SIX), around 30.08% of its 13F portfolio. Becker Drapkin Management is also relatively very bullish on the stock, earmarking 3.47 percent of its 13F equity portfolio to SIX.
Judging by the fact that Six Flags Entertainment Corp (NYSE:SIX) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Ken Grossman and Glen Schneider’s SG Capital Management said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $7.8 million in stock. Leon Lowenstein’s fund, Lionstone Capital Management, also sold off its stock, about $7.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Six Flags Entertainment Corp (NYSE:SIX). These stocks are The Macerich Company (NYSE:MAC), Ormat Technologies, Inc. (NYSE:ORA), Nektar Therapeutics (NASDAQ:NKTR), and Axsome Therapeutics, Inc. (NASDAQ:AXSM). This group of stocks’ market valuations resemble SIX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAC | 26 | 222927 | 3 |
| ORA | 16 | 193093 | -1 |
| NKTR | 26 | 230140 | 7 |
| AXSM | 25 | 576913 | 9 |
| Average | 23.25 | 305768 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $609 million in SIX’s case. The Macerich Company (NYSE:MAC) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Six Flags Entertainment Corp (NYSE:SIX) 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 SIX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SIX were disappointed as the stock returned -66.3% 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.
