Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards SciPlay Corporation (NASDAQ:SCPL).
SciPlay Corporation (NASDAQ:SCPL) was in 15 hedge funds’ portfolios at the end of December. SCPL has seen a decrease in support from the world’s most elite money managers lately. There were 17 hedge funds in our database with SCPL holdings at the end of the previous quarter. Our calculations also showed that SCPL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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’ 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 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.
Ken Griffin of Citadel Investment Group
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. With all of this in mind let’s analyze the latest hedge fund action encompassing SciPlay Corporation (NASDAQ:SCPL).
What does smart money think about SciPlay Corporation (NASDAQ:SCPL)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in SCPL a year ago. 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 SciPlay Corporation (NASDAQ:SCPL) was held by Park West Asset Management, which reported holding $40.9 million worth of stock at the end of September. It was followed by AREX Capital Management with a $13.9 million position. Other investors bullish on the company included Nantahala Capital Management, SG Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to SciPlay Corporation (NASDAQ:SCPL), around 9.19% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, dishing out 2.25 percent of its 13F equity portfolio to SCPL.
Because SciPlay Corporation (NASDAQ:SCPL) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of fund managers that slashed their positions entirely last quarter. It’s worth mentioning that Adam Wolfberg and Steven Landry’s EastBay Asset Management dropped the biggest stake of the 750 funds followed by Insider Monkey, worth an estimated $4.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SciPlay Corporation (NASDAQ:SCPL) but similarly valued. We will take a look at NextCure, Inc. (NASDAQ:NXTC), Office Properties Income Trust (NASDAQ:OPI), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), and Goosehead Insurance, Inc. (NASDAQ:GSHD). This group of stocks’ market valuations match SCPL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NXTC | 17 | 410458 | 9 |
| OPI | 9 | 15847 | -1 |
| CCO | 42 | 369556 | -2 |
| GSHD | 9 | 53749 | -1 |
| Average | 19.25 | 212403 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $101 million in SCPL’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Office Properties Income Trust (NASDAQ:OPI) is the least popular one with only 9 bullish hedge fund positions. SciPlay Corporation (NASDAQ:SCPL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 SCPL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SCPL investors were disappointed as the stock returned -27.1% 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 most of these stocks already outperformed the market in 2020.
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.
