Is Systemax Inc. (NYSE:SYX) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Systemax Inc. (NYSE:SYX) going to take off soon? Money managers are in a pessimistic mood. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that SYX isn't among the 30 most popular stocks among hedge funds (see the video below). SYX was in 11 hedge funds' portfolios at the end of June. There were 12 hedge funds in our database with SYX positions at the end of the previous quarter. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the fresh hedge fund action regarding Systemax Inc. (NYSE:SYX).
What does smart money think about Systemax Inc. (NYSE:SYX)?
At Q2's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SYX over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Cliff Asness's AQR Capital Management has the most valuable position in Systemax Inc. (NYSE:SYX), worth close to $6.5 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $4.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Renaissance Technologies, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.
Due to the fact that Systemax Inc. (NYSE:SYX) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of fund managers that decided to sell off their entire stakes in the second quarter. Interestingly, George McCabe's Portolan Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $2.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Systemax Inc. (NYSE:SYX) but similarly valued. We will take a look at HomeStreet Inc (NASDAQ:HMST), Delek Logistics Partners LP (NYSE:DKL), Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), and Lindblad Expeditions Holdings Inc (NASDAQ:LIND). This group of stocks' market valuations are closest to SYX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMST,9,17189,-1 DKL,1,2994,0 BLX,1,6963,0 LIND,15,190272,-5 Average,6.5,54355,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $20 million in SYX's case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand Delek Logistics Partners LP (NYSE:DKL) is the least popular one with only 1 bullish hedge fund positions. Systemax Inc. (NYSE:SYX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SYX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SYX were disappointed as the stock returned -0.1% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.