We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Simpson Manufacturing Co, Inc. (NYSE:SSD) and determine whether hedge funds skillfully traded this stock.
Is Simpson Manufacturing Co, Inc. (NYSE:SSD) a cheap investment right now? The best stock pickers were taking an optimistic view. The number of long hedge fund positions improved by 2 lately. Our calculations also showed that SSD 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). SSD was in 26 hedge funds' portfolios at the end of March. There were 24 hedge funds in our database with SSD positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most stock holders, hedge funds are assumed to be slow, outdated financial tools of the past. While there are more than 8000 funds in operation at the moment, We hone in on the masters of this club, approximately 850 funds. It is estimated that this group of investors have their hands on the lion's share of the smart money's total asset base, and by following their highest performing stock picks, Insider Monkey has brought to light several investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outperformed 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 .
[caption id="attachment_340081" align="aligncenter" width="396"] Phill Gross of Adage Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind we're going to analyze the new hedge fund action surrounding Simpson Manufacturing Co, Inc. (NYSE:SSD).
What does smart money think about Simpson Manufacturing Co, Inc. (NYSE:SSD)?
At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in SSD a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ariel Investments held the most valuable stake in Simpson Manufacturing Co, Inc. (NYSE:SSD), which was worth $57.2 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $32 million worth of shares. Arrowstreet Capital, Renaissance Technologies, and Millennium 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 Ariel Investments allocated the biggest weight to Simpson Manufacturing Co, Inc. (NYSE:SSD), around 1% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.44 percent of its 13F equity portfolio to SSD.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the biggest position in Simpson Manufacturing Co, Inc. (NYSE:SSD). Adage Capital Management had $6.4 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also initiated a $0.6 million position during the quarter. The following funds were also among the new SSD investors: Bruce Kovner's Caxton Associates LP, Tim Curro's Value Holdings LP, and Steve Cohen's Point72 Asset Management.
Let's go over hedge fund activity in other stocks similar to Simpson Manufacturing Co, Inc. (NYSE:SSD). We will take a look at New Relic Inc (NYSE:NEWR), WD-40 Company (NASDAQ:WDFC), Livongo Health, Inc. (NASDAQ:LVGO), and Cosan Limited (NYSE:CZZ). This group of stocks' market caps resemble SSD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEWR,31,809963,-13 WDFC,17,199539,0 LVGO,17,82549,-1 CZZ,15,141907,3 Average,20,308490,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $197 million in SSD's case. New Relic Inc (NYSE:NEWR) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 15 bullish hedge fund positions. Simpson Manufacturing Co, Inc. (NYSE:SSD) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SSD as the stock returned 36.6% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.