Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Sally Beauty Holdings, Inc. (NYSE:SBH)? The smart money sentiment can provide an answer to this question.
Is Sally Beauty Holdings, Inc. (NYSE:SBH) a good investment now? The smart money is in a pessimistic mood. The number of bullish hedge fund bets decreased by 3 in recent months. Our calculations also showed that sbh isn’t among the 30 most popular stocks among hedge funds.
According to most stock holders, hedge funds are viewed as unimportant, old investment vehicles of years past. While there are over 8000 funds in operation at present, We hone in on the bigwigs of this group, about 750 funds. These hedge fund managers command the lion’s share of the smart money’s total asset base, and by tracking their matchless equity investments, Insider Monkey has identified many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
We’re going to review the recent hedge fund action encompassing Sally Beauty Holdings, Inc. (NYSE:SBH).
Hedge fund activity in Sally Beauty Holdings, Inc. (NYSE:SBH)
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in SBH over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Sally Beauty Holdings, Inc. (NYSE:SBH), with a stake worth $48.1 million reported as of the end of March. Trailing Arrowstreet Capital was AQR Capital Management, which amassed a stake valued at $37.4 million. D E Shaw, Maverick Capital, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Sally Beauty Holdings, Inc. (NYSE:SBH) has faced falling interest from hedge fund managers, we can see that there is a sect of hedgies who were dropping their positions entirely heading into Q3. Interestingly, David Harding’s Winton Capital Management cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $9 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund cut about $5.7 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q3.
Let’s check out hedge fund activity in other stocks similar to Sally Beauty Holdings, Inc. (NYSE:SBH). These stocks are Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Denali Therapeutics Inc. (NASDAQ:DNLI), Nelnet, Inc. (NYSE:NNI), and Appian Corporation (NASDAQ:APPN). This group of stocks’ market values match SBH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARNA | 22 | 383836 | -3 |
| DNLI | 10 | 7646 | 5 |
| NNI | 15 | 77013 | 1 |
| APPN | 19 | 331791 | 10 |
| Average | 16.5 | 200072 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $176 million in SBH’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 10 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately SBH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SBH were disappointed as the stock returned -17.2% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
