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Did Hedge Funds Drop The Ball On Sequential Brands Group Inc (SQBG) ?

Abigail Fisher

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Sequential Brands Group Inc (NASDAQ:SQBG) to find out whether it was one of their high conviction long-term ideas.

Sequential Brands Group Inc (NASDAQ:SQBG) was in 4 hedge funds' portfolios at the end of September. SQBG has experienced a decrease in hedge fund sentiment of late. There were 5 hedge funds in our database with SQBG holdings at the end of the previous quarter. Our calculations also showed that SQBG 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.

5 Most Popular Stocks Among Hedge Funds

According to most market participants, hedge funds are seen as underperforming, outdated investment tools of years past. While there are over 8000 funds with their doors open at present, Our researchers look at the elite of this group, about 750 funds. These money managers oversee the lion's share of the hedge fund industry's total asset base, and by tracking their unrivaled equity investments, Insider Monkey has unearthed a number of investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a 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_25981" align="aligncenter" width="452"] Paul Tudor Jones of Tudor Investment Corp[/caption]

TUDOR INVESTMENT CORP

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's go over the latest hedge fund action encompassing Sequential Brands Group Inc (NASDAQ:SQBG).

What does smart money think about Sequential Brands Group Inc (NASDAQ:SQBG)?

Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in SQBG a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Prescott Group Capital Management, managed by Phil Frohlich, holds the number one position in Sequential Brands Group Inc (NASDAQ:SQBG). Prescott Group Capital Management has a $2.1 million position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is 683 Capital Partners, managed by Ari Zweiman, which holds a $0.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Mark N. Diker's Diker Management, Paul Tudor Jones's Tudor Investment Corp and . In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Sequential Brands Group Inc (NASDAQ:SQBG), around 0.65% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to SQBG.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SQBG as a viable investment and initiated a position in the stock.

Let's go over hedge fund activity in other stocks similar to Sequential Brands Group Inc (NASDAQ:SQBG). We will take a look at Regulus Therapeutics Inc (NASDAQ:RGLS), Check-Cap Ltd. (NASDAQ:CHEK), My Size, Inc. (NASDAQ:MYSZ), and Eltek Ltd. (NASDAQ:ELTK). This group of stocks' market caps match SQBG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGLS,4,3847,-1 CHEK,4,1289,0 MYSZ,1,21,0 ELTK,1,75,0 Average,2.5,1308,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $3 million in SQBG's case. Regulus Therapeutics Inc (NASDAQ:RGLS) is the most popular stock in this table. On the other hand My Size, Inc. (NASDAQ:MYSZ) is the least popular one with only 1 bullish hedge fund positions. Sequential Brands Group Inc (NASDAQ:SQBG) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on SQBG as the stock returned 81.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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