We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Steelcase Inc. (NYSE:SCS).
Is Steelcase Inc. (NYSE:SCS) a marvelous investment now? Hedge funds are becoming more confident. The number of long hedge fund bets rose by 2 recently. Our calculations also showed that SCS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SCS was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with SCS holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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.
Noam Gottesman of GLG Partners
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the recent hedge fund action encompassing Steelcase Inc. (NYSE:SCS).
What does smart money think about Steelcase Inc. (NYSE:SCS)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SCS over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Steelcase Inc. (NYSE:SCS), with a stake worth $25.7 million reported as of the end of September. Trailing Renaissance Technologies was Pzena Investment Management, which amassed a stake valued at $15.4 million. GLG Partners, AQR Capital Management, and Citadel Investment Group 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 Weld Capital Management allocated the biggest weight to Steelcase Inc. (NYSE:SCS), around 0.09% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to SCS.
Consequently, key money managers have jumped into Steelcase Inc. (NYSE:SCS) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, created the largest position in Steelcase Inc. (NYSE:SCS). Marshall Wace had $10.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Steelcase Inc. (NYSE:SCS) but similarly valued. These stocks are Penn National Gaming, Inc (NASDAQ:PENN), Korn Ferry (NYSE:KFY), First Midwest Bancorp Inc (NASDAQ:FMBI), and Avis Budget Group Inc. (NASDAQ:CAR). This group of stocks’ market caps resemble SCS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PENN | 23 | 227001 | 3 |
| KFY | 23 | 169429 | 1 |
| FMBI | 14 | 73984 | 0 |
| CAR | 21 | 951854 | 0 |
| Average | 20.25 | 355567 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $356 million. That figure was $121 million in SCS’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 14 bullish hedge fund positions. Steelcase Inc. (NYSE:SCS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SCS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SCS were disappointed as the stock returned -1.5% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
