Here is What Hedge Funds Think About Sleep Number Corporation (SNBR)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Sleep Number Corporation (NASDAQ:SNBR) and determine whether the smart money was really smart about this stock.

Sleep Number Corporation (NASDAQ:SNBR) has experienced a decrease in enthusiasm from smart money of late. Sleep Number Corporation (NASDAQ:SNBR) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 20. Our calculations also showed that SNBR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the recent hedge fund action encompassing Sleep Number Corporation (NASDAQ:SNBR).

How have hedgies been trading Sleep Number Corporation (NASDAQ:SNBR)?

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SNBR over the last 20 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Sleep Number Corporation (NASDAQ:SNBR), which was worth $42.5 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $32.1 million worth of shares. Giverny Capital, GLG Partners, and Citadel Investment Group 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 Giverny Capital allocated the biggest weight to Sleep Number Corporation (NASDAQ:SNBR), around 0.9% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, setting aside 0.32 percent of its 13F equity portfolio to SNBR.

Seeing as Sleep Number Corporation (NASDAQ:SNBR) has faced bearish sentiment from hedge fund managers, we can see that there is a sect of funds that elected to cut their full holdings last quarter. Interestingly, Renaissance Technologies said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $3 million in stock. Hoon Kim’s fund, Quantinno Capital, also cut its stock, about $0.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Sleep Number Corporation (NASDAQ:SNBR). These stocks are MicroStrategy Incorporated (NASDAQ:MSTR), Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), Kaman Corporation (NYSE:KAMN), Aphria Inc. (NYSE:APHA), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), CryoPort, Inc. (NASDAQ:CYRX), and Park National Corporation (NYSE:PRK). This group of stocks’ market caps are similar to SNBR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $116 million in SNBR’s case. MicroStrategy Incorporated (NASDAQ:MSTR) is the most popular stock in this table. On the other hand Aphria Inc. (NYSE:APHA) is the least popular one with only 9 bullish hedge fund positions. Sleep Number Corporation (NASDAQ:SNBR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SNBR is 61.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on SNBR as the stock returned 17.5% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.