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Hedge Funds Are Done Selling Seritage Growth Properties (SRG)?

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  • SRG

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Seritage Growth Properties (NYSE:SRG) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Seritage Growth Properties (NYSE:SRG) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds' portfolios at the end of the second quarter of 2021. Our calculations also showed that SRG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare SRG to other stocks including The First Bancshares, Inc. (NASDAQ:FBMS), U.S. Lime & Minerals Inc. (NASDAQ:USLM), and Newtek Business Services Corp (NASDAQ:NEWT) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.


Paul Tudor Jones of Tudor Investment Corp

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 gander at the fresh hedge fund action encompassing Seritage Growth Properties (NYSE:SRG).

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

Heading into the third quarter of 2021, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in SRG a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Mohnish Pabrai held the most valuable stake in Seritage Growth Properties (NYSE:SRG), which was worth $87.1 million at the end of the second quarter. On the second spot was Aquamarine Capital Management which amassed $9.2 million worth of shares. ESL Investments, Wallace Capital Management, and Third Avenue 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 Mohnish Pabrai allocated the biggest weight to Seritage Growth Properties (NYSE:SRG), around 31.37% of its 13F portfolio. ESL Investments is also relatively very bullish on the stock, designating 4.75 percent of its 13F equity portfolio to SRG.

Judging by the fact that Seritage Growth Properties (NYSE:SRG) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who were dropping their full holdings heading into Q3. At the top of the heap, Jonathan Bloomberg's BloombergSen dumped the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $9 million in stock. Donald Sussman's fund, Paloma Partners, also dropped its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Seritage Growth Properties (NYSE:SRG). We will take a look at The First Bancshares, Inc. (NASDAQ:FBMS), U.S. Lime & Minerals Inc. (NASDAQ:USLM), Newtek Business Services Corp (NASDAQ:NEWT), FLEX LNG Ltd. (NYSE:FLNG), Cincinnati Bell Inc. (NYSE:CBB), Orthofix Medical Inc (NASDAQ:OFIX), and Gannett Co., Inc. (NYSE:GCI). This group of stocks' market caps are similar to SRG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBMS,9,56841,1 USLM,5,49402,1 NEWT,4,7207,-1 FLNG,6,7467,5 CBB,14,154767,2 OFIX,17,109833,0 GCI,18,86672,-3 Average,10.4,67456,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $123 million in SRG's case. Gannett Co., Inc. (NYSE:GCI) is the most popular stock in this table. On the other hand Newtek Business Services Corp (NASDAQ:NEWT) is the least popular one with only 4 bullish hedge fund positions. Seritage Growth Properties (NYSE:SRG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SRG is 37.5. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately SRG wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SRG investors were disappointed as the stock returned -15.5% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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