Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Service Corporation International (NYSE:SCI) changed recently.
Service Corporation International (NYSE:SCI) has seen a decrease in hedge fund sentiment of late. SCI was in 15 hedge funds' portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with SCI positions at the end of the previous quarter. Our calculations also showed that SCI isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the latest hedge fund action surrounding Service Corporation International (NYSE:SCI).
Hedge fund activity in Service Corporation International (NYSE:SCI)
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCI over the last 16 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Service Corporation International (NYSE:SCI) was held by Select Equity Group, which reported holding $280.3 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $38.8 million position. Other investors bullish on the company included Renaissance Technologies, Balyasny Asset Management, and AQR Capital Management.
Because Service Corporation International (NYSE:SCI) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few fund managers who were dropping their full holdings by the end of the second quarter. Intriguingly, Benjamin A. Smith's Laurion Capital Management sold off the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $40.2 million in stock. Joseph Samuels's fund, Islet Management, also said goodbye to its stock, about $5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds by the end of the second quarter.
Let's check out hedge fund activity in other stocks similar to Service Corporation International (NYSE:SCI). These stocks are Amdocs Limited (NASDAQ:DOX), MongoDB, Inc. (NASDAQ:MDB), Ralph Lauren Corporation (NYSE:RL), and BorgWarner Inc. (NYSE:BWA). All of these 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 DOX,25,678426,-1 MDB,34,791633,7 RL,35,1097213,1 BWA,21,831068,0 Average,28.75,849585,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $850 million. That figure was $425 million in SCI's case. Ralph Lauren Corporation (NYSE:RL) is the most popular stock in this table. On the other hand BorgWarner Inc. (NYSE:BWA) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Service Corporation International (NYSE:SCI) is even less popular than BWA. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SCI, though not to the same extent, as the stock returned 2.6% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.