Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards SFL Corporation Ltd. (NYSE:SFL).
SFL Corporation Ltd. (NYSE:SFL) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare SFL to other stocks including Comstock Resources Inc (NYSE:CRK), Enerpac Tool Group Corp. (NYSE:EPAC), and Studio City International Holdings Limited (NYSE:MSC) to get a better sense of its popularity.
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the fresh hedge fund action encompassing SFL Corporation Ltd. (NYSE:SFL).
What have hedge funds been doing with SFL Corporation Ltd. (NYSE:SFL)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SFL over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the most valuable position in SFL Corporation Ltd. (NYSE:SFL). Millennium Management has a $18 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Millennium Management’s heels is Carlson Capital, managed by Clint Carlson, which holds a $16.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Renaissance Technologies, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to SFL Corporation Ltd. (NYSE:SFL), around 0.3% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to SFL.
Judging by the fact that SFL Corporation Ltd. (NYSE:SFL) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Mika Toikka’s AlphaCrest Capital Management dropped the largest investment of all the hedgies followed by Insider Monkey, worth an estimated $0.6 million in stock. Andrew Weiss’s fund, Weiss Asset Management, also sold off its stock, about $0.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as SFL Corporation Ltd. (NYSE:SFL) but similarly valued. These stocks are Comstock Resources Inc (NYSE:CRK), Enerpac Tool Group Corp. (NYSE:EPAC), Studio City International Holdings Limited (NYSE:MSC), and ForeScout Technologies, Inc. (NASDAQ:FSCT). All of these stocks’ market caps are similar to SFL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRK | 7 | 3882 | 2 |
| EPAC | 20 | 314293 | 9 |
| MSC | 4 | 239381 | 0 |
| FSCT | 21 | 419129 | 2 |
| Average | 13 | 244171 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $90 million in SFL’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 4 bullish hedge fund positions. SFL Corporation Ltd. (NYSE:SFL) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately SFL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SFL were disappointed as the stock returned -32.7% during the same time 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
