U.S. Markets close in 2 hrs 48 mins

Here’s What Hedge Funds Think About ServiceMaster Global Holdings Inc (SERV)

Nina Todic

Is ServiceMaster Global Holdings Inc (NYSE:SERV) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. 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.

ServiceMaster Global Holdings Inc (NYSE:SERV) investors should be aware of a decrease in support from the world's most elite money managers of late. SERV was in 24 hedge funds' portfolios at the end of March. There were 27 hedge funds in our database with SERV positions at the end of the previous quarter. Our calculations also showed that serv isn't among the 30 most popular stocks among hedge funds.

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.

RENAISSANCE TECHNOLOGIES

We're going to take a peek at the fresh hedge fund action surrounding ServiceMaster Global Holdings Inc (NYSE:SERV).

What have hedge funds been doing with ServiceMaster Global Holdings Inc (NYSE:SERV)?

At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SERV over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SERV Positions

The largest stake in ServiceMaster Global Holdings Inc (NYSE:SERV) was held by Select Equity Group, which reported holding $304.2 million worth of stock at the end of March. It was followed by Gates Capital Management with a $84.3 million position. Other investors bullish on the company included AQR Capital Management, Osterweis Capital Management, and Renaissance Technologies.

Due to the fact that ServiceMaster Global Holdings Inc (NYSE:SERV) has experienced bearish sentiment from the smart money, logic holds that there is a sect of fund managers that elected to cut their full holdings last quarter. Intriguingly, David Cohen and Harold Levy's Iridian Asset Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $143.7 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $15.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to ServiceMaster Global Holdings Inc (NYSE:SERV). We will take a look at Tilray, Inc. (NASDAQ:TLRY), Old Republic International Corporation (NYSE:ORI), Integrated Device Technology, Inc. (NASDAQ:IDTI), and Aluminum Corp. of China Limited (NYSE:ACH). This group of stocks' market caps are similar to SERV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TLRY,10,22079,2 ORI,19,432254,-4 IDTI,29,1393513,-6 ACH,4,5548,0 Average,15.5,463349,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $463 million. That figure was $522 million in SERV's case. Integrated Device Technology, Inc. (NASDAQ:IDTI) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. ServiceMaster Global Holdings Inc (NYSE:SERV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SERV as the stock returned 15.2% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content