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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Signet Jewelers Limited (NYSE:SIG).
Signet Jewelers Limited (NYSE:SIG) shareholders have witnessed an increase in support from the world’s most elite money managers recently. Our calculations also showed that SIG 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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Heebner of Capital Growth Management
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. Now let’s view the recent hedge fund action surrounding Signet Jewelers Limited (NYSE:SIG).
How are hedge funds trading Signet Jewelers Limited (NYSE:SIG)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in SIG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the largest position in Signet Jewelers Limited (NYSE:SIG), worth close to $41.5 million, amounting to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Capital Growth Management, managed by Ken Heebner, which holds a $35.8 million position; 2.9% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include Robert Joseph Caruso’s Select Equity Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Signet Jewelers Limited (NYSE:SIG), around 2.89% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to SIG.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, created the largest position in Signet Jewelers Limited (NYSE:SIG). Capital Growth Management had $35.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $5.5 million position during the quarter. The other funds with brand new SIG positions are Philippe Laffont’s Coatue Management, Kamyar Khajavi’s MIK Capital, and Jinghua Yan’s TwinBeech Capital.
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. We will take a look at Revlon Inc (NYSE:REV), Everi Holdings Inc (NYSE:EVRI), Kenon Holdings Ltd. (NYSE:KEN), and ProPetro Holding Corp. (NYSE:PUMP). This group of stocks’ market values resemble SIG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REV | 38 | 291977 | 3 |
| EVRI | 30 | 298726 | 7 |
| KEN | 2 | 412 | 1 |
| PUMP | 23 | 222838 | 1 |
| Average | 23.25 | 203488 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $189 million in SIG’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 2 bullish hedge fund positions. Signet Jewelers Limited (NYSE:SIG) 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 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 gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately SIG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SIG investors were disappointed as the stock returned -57.6% 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 10 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.
