How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Signet Jewelers Limited (NYSE:SIG) and determine whether hedge funds had an edge regarding this stock.
Is Signet Jewelers Limited (NYSE:SIG) a healthy stock for your portfolio? Money managers were becoming more confident. The number of long hedge fund bets moved up by 3 lately. Our calculations also showed that SIG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are assumed to be slow, outdated financial vehicles of the past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the upper echelon of this club, around 850 funds. Most estimates calculate that this group of people administer the lion’s share of all hedge funds’ total capital, and by shadowing their first-class equity investments, Insider Monkey has determined a few investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Philippe Laffont of Coatue Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the new hedge fund action encompassing Signet Jewelers Limited (NYSE:SIG).
What does smart money think about Signet Jewelers Limited (NYSE:SIG)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SIG over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Signet Jewelers Limited (NYSE:SIG) was held by Select Equity Group, which reported holding $22 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11.3 million position. Other investors bullish on the company included D E Shaw, Contrarius Investment Management, and Select Equity Group. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to Signet Jewelers Limited (NYSE:SIG), around 0.87% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to SIG.
As industrywide interest jumped, specific money managers have jumped into Signet Jewelers Limited (NYSE:SIG) headfirst. Renaissance Technologies, initiated the most outsized position in Signet Jewelers Limited (NYSE:SIG). Renaissance Technologies had $11.3 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new SIG investors: Seth Wunder’s Black-and-White Capital, Anthony Joseph Vaccarino’s North Fourth Asset Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Signet Jewelers Limited (NYSE:SIG) but similarly valued. These stocks are Establishment Labs Holdings Inc. (NASDAQ:ESTA), Capital City Bank Group, Inc. (NASDAQ:CCBG), DMC Global Inc. (NASDAQ:BOOM), and Peapack-Gladstone Financial Corp (NASDAQ:PGC). This group of stocks’ market caps match SIG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESTA | 14 | 64923 | 4 |
| CCBG | 3 | 6586 | -2 |
| BOOM | 12 | 22475 | -8 |
| PGC | 18 | 36066 | 1 |
| Average | 11.75 | 32513 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $72 million in SIG’s case. Peapack-Gladstone Financial Corp (NASDAQ:PGC) is the most popular stock in this table. On the other hand Capital City Bank Group, Inc. (NASDAQ:CCBG) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Signet Jewelers Limited (NYSE:SIG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SIG as the stock returned 59.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Follow Signet Jewelers Ltd (NYSE:SIG)
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Disclosure: None. This article was originally published at Insider Monkey.
