The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of SunCoke Energy, Inc (NYSE:SXC) and find out how it is affected by hedge funds' moves.
SunCoke Energy, Inc (NYSE:SXC) has seen a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that SXC 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.
Why do we pay any attention at all to hedge fund sentiment? 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_26073" align="aligncenter" width="450"] Jim Simons of Renaissance Technologies[/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 peek at the fresh hedge fund action encompassing SunCoke Energy, Inc (NYSE:SXC).
What have hedge funds been doing with SunCoke Energy, Inc (NYSE:SXC)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in SXC a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Mangrove Partners held the most valuable stake in SunCoke Energy, Inc (NYSE:SXC), which was worth $27.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $27.3 million worth of shares. Nokomis Capital, JHL Capital Group, and Tontine Asset 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 JHL Capital Group allocated the biggest weight to SunCoke Energy, Inc (NYSE:SXC), around 3.39% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, dishing out 3.36 percent of its 13F equity portfolio to SXC.
Due to the fact that SunCoke Energy, Inc (NYSE:SXC) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies who sold off their full holdings by the end of the third quarter. It's worth mentioning that Frederick DiSanto's Ancora Advisors cut the biggest stake of all the hedgies followed by Insider Monkey, valued at about $10 million in stock. Peter Muller's fund, PDT Partners, also sold off its stock, about $1.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SunCoke Energy, Inc (NYSE:SXC) but similarly valued. These stocks are Cheetah Mobile Inc (NYSE:CMCM), Heritage Commerce Corp. (NASDAQ:HTBK), Barings BDC, Inc. (NYSE:BBDC), and Amalgamated Bank (NASDAQ:AMAL). This group of stocks' market caps resemble SXC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMCM,4,9245,-2 HTBK,9,26610,1 BBDC,10,29682,-3 AMAL,12,60603,5 Average,8.75,31535,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $98 million in SXC's case. Amalgamated Bank (NASDAQ:AMAL) is the most popular stock in this table. On the other hand Cheetah Mobile Inc (NYSE:CMCM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks SunCoke Energy, Inc (NYSE:SXC) 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 SXC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SXC were disappointed as the stock returned -8.1% 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.