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Hedge Funds Are Betting On Signet Jewelers Limited (SIG)

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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Signet Jewelers Limited (NYSE:SIG).

Signet Jewelers Limited (NYSE:SIG) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Signet Jewelers Limited (NYSE:SIG) was in 33 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 55. There were 26 hedge funds in our database with SIG holdings at the end of March. Our calculations also showed that SIG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's take a peek at the latest hedge fund action encompassing Signet Jewelers Limited (NYSE:SIG).

Do Hedge Funds Think SIG Is A Good Stock To Buy Now?

At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in SIG a year ago. So, let's review 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 Signet Jewelers Limited (NYSE:SIG), which was worth $533.9 million at the end of the second quarter. On the second spot was D E Shaw which amassed $184.9 million worth of shares. Contrarius Investment Management, Arrowstreet Capital, and Samlyn Capital 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 Contrarius Investment Management allocated the biggest weight to Signet Jewelers Limited (NYSE:SIG), around 7.4% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 3.28 percent of its 13F equity portfolio to SIG.

As aggregate interest increased, specific money managers have jumped into Signet Jewelers Limited (NYSE:SIG) headfirst. Capital Growth Management, managed by Ken Heebner, initiated the biggest position in Signet Jewelers Limited (NYSE:SIG). Capital Growth Management had $36.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $11.6 million position during the quarter. The following funds were also among the new SIG investors: Kamyar Khajavi's MIK Capital, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, and Karim Abbadi and Edward McBride's Centiva Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Signet Jewelers Limited (NYSE:SIG) but similarly valued. These stocks are Premier Inc (NASDAQ:PINC), Quaker Chemical Corp (NYSE:KWR), Sunnova Energy International Inc. (NYSE:NOVA), Alarm.com Holdings Inc (NASDAQ:ALRM), Altra Industrial Motion Corp. (NASDAQ:AIMC), Matador Resources Co (NYSE:MTDR), and APi Group Corporation (NYSE:APG). All of these stocks' market caps resemble SIG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PINC,17,147282,-2 KWR,15,152150,-3 NOVA,25,294495,-1 ALRM,22,325751,2 AIMC,6,9536,-12 MTDR,18,301146,4 APG,34,1221074,1 Average,19.6,350205,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $350 million. That figure was $1209 million in SIG's case. APi Group Corporation (NYSE:APG) is the most popular stock in this table. On the other hand Altra Industrial Motion Corp. (NASDAQ:AIMC) is the least popular one with only 6 bullish hedge fund positions. Signet Jewelers Limited (NYSE:SIG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SIG is 76.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on SIG as the stock returned 7.3% since the end of Q2 (through 10/15) 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.