Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Is Sonoco Products Company (NYSE:SON) a good investment now? Investors who are in the know are getting less bullish. The number of bullish hedge fund bets retreated by 6 lately. Our calculations also showed that SON isn't among the 30 most popular stocks among hedge funds. SON was in 17 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 23 hedge funds in our database with SON holdings at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a glance at the key hedge fund action surrounding Sonoco Products Company (NYSE:SON).
What does the smart money think about Sonoco Products Company (NYSE:SON)?
At Q4's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SON over the last 14 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of Sonoco Products Company (NYSE:SON), with a stake worth $26 million reported as of the end of September. Trailing Impax Asset Management was Citadel Investment Group, which amassed a stake valued at $25 million. AQR Capital Management, Royce & Associates, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Sonoco Products Company (NYSE:SON) has witnessed a decline in interest from hedge fund managers, logic holds that there was a specific group of hedge funds that decided to sell off their positions entirely in the third quarter. It's worth mentioning that Jim Simons's Renaissance Technologies sold off the largest position of all the hedgies followed by Insider Monkey, comprising close to $2 million in stock. George Hall's fund, Clinton Group, also dumped its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Sonoco Products Company (NYSE:SON) but similarly valued. We will take a look at Dun & Bradstreet Corporation (NYSE:DNB), Gentex Corporation (NASDAQ:GNTX), LPL Financial Holdings Inc (NASDAQ:LPLA), and Dunkin Brands Group Inc (NASDAQ:DNKN). This group of stocks' market caps match SON's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DNB,28,875958,-6 GNTX,23,265240,-4 LPLA,34,1007196,-1 DNKN,18,108533,6 Average,25.75,564232,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $564 million. That figure was $109 million in SON's case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand Dunkin Brands Group Inc (NASDAQ:DNKN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Sonoco Products Company (NYSE:SON) is even less popular than DNKN. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SON, though not to the same extent, as the stock returned 17.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.