We are still in an overall bull market and many stocks that smart money investors were piling into 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. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That's a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Scorpio Bulkers Inc (NYSE:SALT) has experienced an increase in support from the world's most elite money managers in recent months. Our calculations also showed that SALT 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.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's check out the recent hedge fund action regarding Scorpio Bulkers Inc (NYSE:SALT).
Hedge fund activity in Scorpio Bulkers Inc (NYSE:SALT)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SALT over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Scorpio Bulkers Inc (NYSE:SALT), with a stake worth $11 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $4.7 million. Millennium Management, Valueworks LLC, and AQR Capital 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 Valueworks LLC allocated the biggest weight to Scorpio Bulkers Inc (NYSE:SALT), around 2.07% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to SALT.
Consequently, key money managers were leading the bulls' herd. AQR Capital Management, managed by Cliff Asness, established the most valuable position in Scorpio Bulkers Inc (NYSE:SALT). AQR Capital Management had $1.7 million invested in the company at the end of the quarter. Bruce Kovner's Caxton Associates also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Michael Gelband's ExodusPoint Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Scorpio Bulkers Inc (NYSE:SALT) but similarly valued. We will take a look at Tejon Ranch Company (NYSE:TRC), CVR Partners LP (NYSE:UAN), Replimune Group, Inc. (NASDAQ:REPL), and Ares Commercial Real Estate Corp (NYSE:ACRE). All of these stocks' market caps are closest to SALT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRC,12,74498,2 UAN,4,44172,0 REPL,5,68148,-1 ACRE,10,20541,-3 Average,7.75,51840,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $26 million in SALT's case. Tejon Ranch Company (NYSE:TRC) is the most popular stock in this table. On the other hand CVR Partners LP (NYSE:UAN) is the least popular one with only 4 bullish hedge fund positions. Scorpio Bulkers Inc (NYSE:SALT) 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 SALT, though not to the same extent, as the stock returned 8.7% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.