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.
The Scotts Miracle-Gro Company (NYSE:SMG) was in 30 hedge funds' portfolios at the end of September. SMG shareholders have witnessed an increase in enthusiasm from smart money of late. There were 24 hedge funds in our database with SMG holdings at the end of the previous quarter. Our calculations also showed that SMG 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_193030" align="aligncenter" width="450"] Tom Gayner of Markel Gayner Asset Management[/caption]
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 take a glance at the key hedge fund action encompassing The Scotts Miracle-Gro Company (NYSE:SMG).
How are hedge funds trading The Scotts Miracle-Gro Company (NYSE:SMG)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SMG over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of The Scotts Miracle-Gro Company (NYSE:SMG), with a stake worth $146 million reported as of the end of September. Trailing Fisher Asset Management was Markel Gayner Asset Management, which amassed a stake valued at $41.8 million. Winton Capital Management, Citadel Investment Group, and Renaissance Technologies 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 Hudson Executive Capital allocated the biggest weight to The Scotts Miracle-Gro Company (NYSE:SMG), around 2.78% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to SMG.
As aggregate interest increased, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in The Scotts Miracle-Gro Company (NYSE:SMG). Arrowstreet Capital had $8.2 million invested in the company at the end of the quarter. David E. Shaw's D E Shaw also initiated a $6.7 million position during the quarter. The following funds were also among the new SMG investors: Paul Marshall and Ian Wace's Marshall Wace, Matthew Tewksbury's Stevens Capital Management, and Renee Yao's Neo Ivy Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as The Scotts Miracle-Gro Company (NYSE:SMG) but similarly valued. These stocks are Harley-Davidson, Inc. (NYSE:HOG), BOK Financial Corporation (NASDAQ:BOKF), MDU Resources Group Inc (NYSE:MDU), and Axis Capital Holdings Limited (NYSE:AXS). This group of stocks' market valuations are similar to SMG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOG,18,20463,4 BOKF,16,189307,-3 MDU,21,378844,0 AXS,28,893110,1 Average,20.75,370431,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $370 million. That figure was $414 million in SMG's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand BOK Financial Corporation (NASDAQ:BOKF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks The Scotts Miracle-Gro Company (NYSE:SMG) 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. Unfortunately SMG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SMG were disappointed as the stock returned -0.1% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.