Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Service Corporation International (NYSE:SCI) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that SCI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most shareholders, hedge funds are viewed as underperforming, old financial tools of the past. While there are more than 8000 funds with their doors open at present, Our experts hone in on the bigwigs of this club, around 750 funds. These hedge fund managers watch over the lion's share of the hedge fund industry's total asset base, and by tailing their finest stock picks, Insider Monkey has revealed many investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action regarding Service Corporation International (NYSE:SCI).
How have hedgies been trading Service Corporation International (NYSE:SCI)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in SCI 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.
Among these funds, Select Equity Group held the most valuable stake in Service Corporation International (NYSE:SCI), which was worth $260.8 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $31.2 million worth of shares. Balyasny Asset Management, AQR Capital Management, and GLG Partners 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 Select Equity Group allocated the biggest weight to Service Corporation International (NYSE:SCI), around 1.77% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, dishing out 0.39 percent of its 13F equity portfolio to SCI.
Consequently, specific money managers were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, initiated the biggest call position in Service Corporation International (NYSE:SCI). PEAK6 Capital Management had $4.4 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $3.6 million investment in the stock during the quarter. The following funds were also among the new SCI investors: Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Paul Marshall and Ian Wace's Marshall Wace, and Mike Vranos's Ellington.
Let's check out hedge fund activity in other stocks similar to Service Corporation International (NYSE:SCI). These stocks are Credit Acceptance Corporation (NASDAQ:CACC), LINE Corporation (NYSE:LN), Store Capital Corporation (NYSE:STOR), and Snap-on Incorporated (NYSE:SNA). This group of stocks' market caps match SCI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CACC,23,1026982,-4 LN,7,105831,-2 STOR,18,979106,-4 SNA,24,487528,-1 Average,18,649862,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $352 million in SCI's case. Snap-on Incorporated (NYSE:SNA) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 7 bullish hedge fund positions. Service Corporation International (NYSE:SCI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SCI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SCI were disappointed as the stock returned -7.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.