We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Spire Inc. (NYSE:SR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Spire Inc. (NYSE:SR) a healthy stock for your portfolio? Prominent investors are getting less optimistic. The number of bullish hedge fund positions retreated by 2 recently. Our calculations also showed that SR 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).
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.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. 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 take a look at the new hedge fund action regarding Spire Inc. (NYSE:SR).
How have hedgies been trading Spire Inc. (NYSE:SR)?
Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SR over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Spire Inc. (NYSE:SR), which was worth $47.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $2.4 million worth of shares. Citadel Investment Group, AlphaCrest Capital Management, and Laurion Capital Management 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 Quantinno Capital allocated the biggest weight to Spire Inc. (NYSE:SR), around 0.26% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to SR.
Due to the fact that Spire Inc. (NYSE:SR) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few hedgies who sold off their entire stakes heading into Q4. Interestingly, Israel Englander’s Millennium Management dumped the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $2.4 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $0.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Spire Inc. (NYSE:SR). We will take a look at The Timken Company (NYSE:TKR), Glacier Bancorp, Inc. (NASDAQ:GBCI), Rayonier Inc. (NYSE:RYN), and Tripadvisor Inc (NASDAQ:TRIP). All of these stocks’ market caps are closest to SR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TKR | 40 | 407847 | 11 |
| GBCI | 13 | 49723 | -1 |
| RYN | 14 | 360071 | -1 |
| TRIP | 39 | 794196 | 7 |
| Average | 26.5 | 402959 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $55 million in SR’s case. The Timken Company (NYSE:TKR) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Spire Inc. (NYSE:SR) is even less popular than GBCI. 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 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on SR, though not to the same extent, as the stock returned -17.7% during the same time period and outperformed the market as well.
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.
