You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
South State Corporation (NASDAQ:SSB) was in 14 hedge funds’ portfolios at the end of June. SSB investors should be aware of an increase in hedge fund interest of late. There were 13 hedge funds in our database with SSB positions at the end of the previous quarter. Our calculations also showed that SSB isn’t among the 30 most popular stocks among hedge funds (view video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the recent hedge fund action encompassing South State Corporation (NASDAQ:SSB).
What have hedge funds been doing with South State Corporation (NASDAQ:SSB)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in SSB a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mark Lee’s Forest Hill Capital has the most valuable position in South State Corporation (NASDAQ:SSB), worth close to $6.3 million, amounting to 2.2% of its total 13F portfolio. The second largest stake is held by Basswood Capital, managed by Matthew Lindenbaum, which holds a $3.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors are Renaissance Technologies, Joe Huber’s Huber Capital Management and Bernard Horn’s Polaris Capital Management.
As one would reasonably expect, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most outsized position in South State Corporation (NASDAQ:SSB). Millennium Management had $0.7 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.1 million position during the quarter.
Let’s go over hedge fund activity in other stocks similar to South State Corporation (NASDAQ:SSB). These stocks are Trinity Industries, Inc. (NYSE:TRN), Lions Gate Entertainment Corp. (NYSE:LGF-B), Cirrus Logic, Inc. (NASDAQ:CRUS), and John Wiley & Sons Inc (NYSE:JW). This group of stocks’ market valuations are closest to SSB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRN | 23 | 664414 | -5 |
| LGF-B | 15 | 238109 | -1 |
| CRUS | 23 | 289863 | 6 |
| JW | 17 | 109505 | 0 |
| Average | 19.5 | 325473 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $20 million in SSB’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Lions Gate Entertainment Corp. (NYSE:LGF-B) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks South State Corporation (NASDAQ:SSB) is even less popular than LGF-B. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SSB, though not to the same extent, as the stock returned 2.8% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
