Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Sally Beauty Holdings, Inc. (NYSE:SBH).
Is Sally Beauty Holdings, Inc. (NYSE:SBH) a good investment now? Hedge funds are thoroughly reducing their bets on the stock. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings slashed by5 recently. SBH was in 12 hedge funds’ portfolios at the end of the third quarter of 2016. There were 17 hedge funds in our database with SBH positions at the end of the previous quarter. At the end of this article we will also compare SBH to other stocks including Realogy Holdings Corp (NYSE:RLGY), Alere Inc (NYSE:ALR), and First Hawaiian Inc (NASDAQ:FHB) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Now, we’re going to check out the latest action regarding Sally Beauty Holdings, Inc. (NYSE:SBH).
Hedge fund activity in Sally Beauty Holdings, Inc. (NYSE:SBH)
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 29% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in SBH over the last 5 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Will Snellings’ Marianas Fund Management has the largest position in Sally Beauty Holdings, Inc. (NYSE:SBH), worth close to $27.2 million, amounting to 6.6% of its total 13F portfolio. Sitting at the No. 2 spot is Mario Gabelli of GAMCO Investors, with a $24.5 million position. Remaining hedge funds and institutional investors that are bullish consist of D. E. Shaw’s D E Shaw which is one of the biggest hedge funds in the world, Alexander Mitchell’s Scopus Asset Management and Steve Cohen’s Point72 Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Since Sally Beauty Holdings, Inc. (NYSE:SBH) has encountered a decline in interest from the smart money, logic holds that there was a specific group of fund managers that elected to cut their entire stakes heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest investment of the “upper crust” of funds studied by Insider Monkey, comprising an estimated $20 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dropped about $7.7 million worth of shares.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sally Beauty Holdings, Inc. (NYSE:SBH) but similarly valued. We will take a look at Realogy Holdings Corp (NYSE:RLGY), Alere Inc (NYSE:ALR), First Hawaiian Inc (NASDAQ:FHB), and Endesa Americas SA – ADR (NYSE:EOCA). This group of stocks’ market valuations resemble SBH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RLGY | 39 | 1277461 | 0 |
| ALR | 44 | 1103467 | 3 |
| FHB | 15 | 92933 | 15 |
| EOCA | 4 | 5652 | -3 |
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $116 million in SBH’s case. Alere Inc (NYSE:ALR) is the most popular stock in this table. On the other hand Endesa Americas SA – ADR (NYSE:EOCA) is the least popular one with only 4 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ALR might be a better candidate to consider taking a long position in.
Disclosure: None
