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 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% 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’ 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 Suburban Propane Partners LP (NYSE:SPH).
Is Suburban Propane Partners LP (NYSE:SPH) a cheap investment right now? Money managers are in a bullish mood. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that SPH isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a glance at the new hedge fund action surrounding Suburban Propane Partners LP (NYSE:SPH).
How have hedgies been trading Suburban Propane Partners LP (NYSE:SPH)?
At the end of the fourth quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in SPH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Abrams Capital Management held the most valuable stake in Suburban Propane Partners LP (NYSE:SPH), which was worth $57.6 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $15.1 million worth of shares. Moreover, Renaissance Technologies, Citadel Investment Group, and Highland Capital Management were also bullish on Suburban Propane Partners LP (NYSE:SPH), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the largest position in Suburban Propane Partners LP (NYSE:SPH). Citadel Investment Group had $0.5 million invested in the company at the end of the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Suburban Propane Partners LP (NYSE:SPH). We will take a look at NGL Energy Partners LP (NYSE:NGL), At Home Group Inc. (NYSE:HOME), NeoGenomics, Inc. (NASDAQ:NEO), and Cavco Industries, Inc. (NASDAQ:CVCO). This group of stocks’ market values are similar to SPH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGL | 4 | 3345 | -1 |
| HOME | 24 | 218194 | 2 |
| NEO | 24 | 116168 | 7 |
| CVCO | 22 | 143203 | 3 |
| Average | 18.5 | 120228 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $76 million in SPH’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Suburban Propane Partners LP (NYSE:SPH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on SPH, though not to the same extent, as the stock returned 23.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
