“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Safe Bulkers, Inc. (NYSE:SB) and see how it was affected.
Safe Bulkers, Inc. (NYSE:SB) was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. SB investors should be aware of an increase in hedge fund sentiment recently. There were 5 hedge funds in our database with SB positions at the end of the previous quarter. Our calculations also showed that SB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action surrounding Safe Bulkers, Inc. (NYSE:SB).
What does smart money think about Safe Bulkers, Inc. (NYSE:SB)?
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the second quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in SB a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Safe Bulkers, Inc. (NYSE:SB) was held by Renaissance Technologies, which reported holding $7.7 million worth of stock at the end of September. It was followed by D E Shaw with a $0.9 million position. Other investors bullish on the company included Millennium Management, Marshall Wace, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Safe Bulkers, Inc. (NYSE:SB), around 0.01% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, setting aside 0.0048 percent of its 13F equity portfolio to SB.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in Safe Bulkers, Inc. (NYSE:SB). Arrowstreet Capital had $0.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks similar to Safe Bulkers, Inc. (NYSE:SB). We will take a look at Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), Rockwell Medical Inc (NASDAQ:RMTI), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), and AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). This group of stocks’ market caps resemble SB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEBK | 2 | 16409 | 0 |
| RMTI | 5 | 1021 | -6 |
| ZYNE | 4 | 7852 | 1 |
| ACRX | 5 | 2657 | -1 |
| Average | 4 | 6985 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $11 million in SB’s case. Rockwell Medical Inc (NASDAQ:RMTI) is the most popular stock in this table. On the other hand Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Safe Bulkers, Inc. (NYSE:SB) 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. Unfortunately SB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SB were disappointed as the stock returned 0% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
