"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Skyline Champion Corporation (NYSE:SKY) and compare it against similarly valued peers such as Fanhua Inc. (NASDAQ:FANH), Enerplus Corp (NYSE:ERF), SPS Commerce, Inc. (NASDAQ:SPSC), and Progress Software Corporation (NASDAQ:PRGS).
Hedge fund interest in Skyline Champion Corporation (NYSE:SKY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SKY to other stocks including Fanhua Inc. (NASDAQ:FANH), Enerplus Corp (NYSE:ERF), and SPS Commerce, Inc. (NASDAQ:SPSC) to get a better sense of its popularity. 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_221556" align="aligncenter" width="600"] Richard Driehaus of Driehaus Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the recent hedge fund action encompassing Skyline Champion Corporation (NYSE:SKY).
What does smart money think about Skyline Champion Corporation (NYSE:SKY)?
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SKY over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, MAK Capital One was the largest shareholder of Skyline Champion Corporation (NYSE:SKY), with a stake worth $101.4 million reported as of the end of September. Trailing MAK Capital One was Driehaus Capital, which amassed a stake valued at $28.6 million. Newtyn Management, 12th Street Asset Management, and Adage 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 MAK Capital One allocated the biggest weight to Skyline Champion Corporation (NYSE:SKY), around 40.51% of its portfolio. Spitfire Capital is also relatively very bullish on the stock, setting aside 7.23 percent of its 13F equity portfolio to SKY.
Judging by the fact that Skyline Champion Corporation (NYSE:SKY) has witnessed bearish sentiment from hedge fund managers, we can see that there is a sect of hedgies that slashed their positions entirely heading into Q4. At the top of the heap, Philip Hempleman's Ardsley Partners dumped the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $3.9 million in stock, and John Osterweis's Osterweis Capital Management was right behind this move, as the fund cut about $3.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Skyline Champion Corporation (NYSE:SKY). These stocks are Fanhua Inc. (NASDAQ:FANH), Enerplus Corp (NYSE:ERF), SPS Commerce, Inc. (NASDAQ:SPSC), and Progress Software Corporation (NASDAQ:PRGS). This group of stocks' market valuations are similar to SKY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FANH,8,16703,-1 ERF,15,155867,3 SPSC,17,142840,-1 PRGS,21,206788,-3 Average,15.25,130550,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $284 million in SKY's case. Progress Software Corporation (NASDAQ:PRGS) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Skyline Champion Corporation (NYSE:SKY) is more popular among hedge funds. 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 SKY, though not to the same extent, as the stock returned 10.3% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.