Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Steel Partners Holdings LP (NYSE:SPLP).
Hedge fund interest in Steel Partners Holdings LP (NYSE:SPLP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SPLP to other stocks including Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), and Motorcar Parts of America, Inc. (NASDAQ:MPAA) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are a large number of methods market participants put to use to analyze stocks. A couple of the best methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best investment managers can outpace the S&P 500 by a solid amount (see the details here).
Warren Lichtenstein of Steel Partners
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. Keeping this in mind let’s take a look at the key hedge fund action surrounding Steel Partners Holdings LP (NYSE:SPLP).
What does smart money think about Steel Partners Holdings LP (NYSE:SPLP)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPLP over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Steel Partners Holdings LP (NYSE:SPLP) was held by Steel Partners, which reported holding $25.4 million worth of stock at the end of September. It was followed by Fondren Management with a $1.5 million position. Other investors bullish on the company included GAMCO Investors, Renaissance Technologies, and MFP Investors. In terms of the portfolio weights assigned to each position Steel Partners allocated the biggest weight to Steel Partners Holdings LP (NYSE:SPLP), around 9.12% of its 13F portfolio. Fondren Management is also relatively very bullish on the stock, earmarking 1.27 percent of its 13F equity portfolio to SPLP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Steel Partners Holdings LP (NYSE:SPLP). These stocks are Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), Motorcar Parts of America, Inc. (NASDAQ:MPAA), and Sientra Inc (NASDAQ:SIEN). This group of stocks’ market valuations match SPLP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EGLE | 11 | 207187 | 2 |
| LXRX | 13 | 9261 | 2 |
| MPAA | 8 | 60972 | -5 |
| SIEN | 16 | 103194 | -3 |
| Average | 12 | 95154 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $28 million in SPLP’s case. Sientra Inc (NASDAQ:SIEN) is the most popular stock in this table. On the other hand Motorcar Parts of America, Inc. (NASDAQ:MPAA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Steel Partners Holdings LP (NYSE:SPLP) is even less popular than MPAA. Hedge funds dodged a bullet by taking a bearish stance towards SPLP. 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 SPLP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SPLP investors were disappointed as the stock returned -6.3% 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.
