Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards SEACOR Marine Holdings Inc. (NYSE:SMHI).
SEACOR Marine Holdings Inc. (NYSE:SMHI) investors should be aware of a decrease in support from the world’s most elite money managers of late. SMHI was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with SMHI holdings at the end of the previous quarter. Our calculations also showed that SMHI 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a look at the new hedge fund action encompassing SEACOR Marine Holdings Inc. (NYSE:SMHI).
How are hedge funds trading SEACOR Marine Holdings Inc. (NYSE:SMHI)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SMHI over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in SEACOR Marine Holdings Inc. (NYSE:SMHI), which was worth $19.9 million at the end of the third quarter. On the second spot was Third Avenue Management which amassed $4.5 million worth of shares. D E Shaw, Cove Street Capital, and Renaissance Technologies 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 Third Avenue Management allocated the biggest weight to SEACOR Marine Holdings Inc. (NYSE:SMHI), around 0.41% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to SMHI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SMHI as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to SEACOR Marine Holdings Inc. (NYSE:SMHI). These stocks are Rayonier Advanced Materials Inc (NYSE:RYAM), Northwest Pipe Company (NASDAQ:NWPX), Twelve Seas Investment Company (NASDAQ:BROG), and Reading International, Inc. (NASDAQ:RDI). This group of stocks’ market caps are similar to SMHI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RYAM | 11 | 30864 | -12 |
| NWPX | 11 | 37764 | 1 |
| BROG | 8 | 17206 | -3 |
| RDI | 7 | 17875 | 1 |
| Average | 9.25 | 25927 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $27 million in SMHI’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand Reading International, Inc. (NASDAQ:RDI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks SEACOR Marine Holdings Inc. (NYSE:SMHI) is even less popular than RDI. Hedge funds dodged a bullet by taking a bearish stance towards SMHI. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SMHI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SMHI investors were disappointed as the stock returned -5.9% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
