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The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Seritage Growth Properties (NYSE:SRG) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Seritage Growth Properties (NYSE:SRG) a healthy stock for your portfolio? The best stock pickers were getting more optimistic. The number of bullish hedge fund bets increased by 1 recently. Seritage Growth Properties (NYSE:SRG) was in 18 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 27. Our calculations also showed that SRG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Mohnish Pabrai of Mohnish Pabrai
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to view the recent hedge fund action surrounding Seritage Growth Properties (NYSE:SRG).
How are hedge funds trading Seritage Growth Properties (NYSE:SRG)?
At second quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SRG over the last 20 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.
Among these funds, Mohnish Pabrai held the most valuable stake in Seritage Growth Properties (NYSE:SRG), which was worth $54 million at the end of the third quarter. On the second spot was BloombergSen which amassed $19.3 million worth of shares. Empyrean Capital Partners, Millennium 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 36.52% of its 13F portfolio. ESL Investments is also relatively very bullish on the stock, earmarking 5.31 percent of its 13F equity portfolio to SRG.
As one would reasonably expect, some big names have jumped into Seritage Growth Properties (NYSE:SRG) headfirst. Mohnish Pabrai, managed by Mohnish Pabrai, initiated the largest position in Seritage Growth Properties (NYSE:SRG). Mohnish Pabrai had $54 million invested in the company at the end of the quarter. Andrew Kurita's Kettle Hill Capital Management also initiated a $4.8 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital and Minhua Zhang's Weld Capital Management.
Let's check out hedge fund activity in other stocks similar to Seritage Growth Properties (NYSE:SRG). We will take a look at Oceaneering International, Inc. (NYSE:OII), Star Bulk Carriers Corp. (NASDAQ:SBLK), Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), Radius Health Inc (NASDAQ:RDUS), The Pennant Group, Inc. (NASDAQ:PNTG), Molecular Templates, Inc. (NASDAQ:MTEM), and Oaktree Specialty Lending Corporation (NASDAQ:OCSL). This group of stocks' market caps resemble SRG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OII,17,42223,-2 SBLK,7,289095,-4 PLAY,12,109509,0 RDUS,21,118715,-2 PNTG,10,20651,2 MTEM,23,145458,6 OCSL,12,47880,-1 Average,14.6,110504,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $130 million in SRG's case. Molecular Templates, Inc. (NASDAQ:MTEM) is the most popular stock in this table. On the other hand Star Bulk Carriers Corp. (NASDAQ:SBLK) is the least popular one with only 7 bullish hedge fund positions. Seritage Growth Properties (NYSE:SRG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SRG is 60.4. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on SRG as the stock returned 18% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.