It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like SunCoke Energy Partners LP (NYSE:SXCP).
Is SunCoke Energy Partners LP (NYSE:SXCP) worth your attention right now? Prominent investors are getting less bullish. The number of bullish hedge fund bets shrunk by 1 recently. Our calculations also showed that sxcp isn't among the 30 most popular stocks among hedge funds. SXCP was in 5 hedge funds' portfolios at the end of December. There were 6 hedge funds in our database with SXCP positions at the end of the previous quarter.
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 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.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Let's take a look at the latest hedge fund action encompassing SunCoke Energy Partners LP (NYSE:SXCP).
How are hedge funds trading SunCoke Energy Partners LP (NYSE:SXCP)?
At the end of the fourth quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SXCP over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GLG Partners was the largest shareholder of SunCoke Energy Partners LP (NYSE:SXCP), with a stake worth $0.8 million reported as of the end of December. Trailing GLG Partners was Citadel Investment Group, which amassed a stake valued at $0.3 million. Arrowstreet Capital, Vertex One Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified SXCP as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SunCoke Energy Partners LP (NYSE:SXCP) but similarly valued. These stocks are America's Car-Mart, Inc. (NASDAQ:CRMT), Heritage Commerce Corp. (NASDAQ:HTBK), International Seaways, Inc. (NYSE:INSW), and Gamco Investors Inc. (NYSE:GBL). This group of stocks' market caps resemble SXCP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRMT,18,70778,2 HTBK,9,21854,-1 INSW,8,188804,0 GBL,8,8721,-1 Average,10.75,72539,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $2 million in SXCP's case. America's Car-Mart, Inc. (NASDAQ:CRMT) is the most popular stock in this table. On the other hand International Seaways, Inc. (NYSE:INSW) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks SunCoke Energy Partners LP (NYSE:SXCP) is even less popular than INSW. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on SXCP, though not to the same extent, as the stock returned 19.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.