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In this article we will check out the progression of hedge fund sentiment towards Service Corporation International (NYSE:SCI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Service Corporation International (NYSE:SCI) ready to rally soon? The best stock pickers are getting more optimistic. The number of bullish hedge fund positions increased by 12 recently. Our calculations also showed that SCI isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Dmitry Balyasny of Balyasny Asset Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's go over the latest hedge fund action encompassing Service Corporation International (NYSE:SCI).
How are hedge funds trading Service Corporation International (NYSE:SCI)?
At Q1's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SCI over the last 18 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, Select Equity Group was the largest shareholder of Service Corporation International (NYSE:SCI), with a stake worth $318.5 million reported as of the end of September. Trailing Select Equity Group was Millennium Management, which amassed a stake valued at $21.5 million. Two Sigma Advisors, Clough Capital Partners, and Winton Capital 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 Select Equity Group allocated the biggest weight to Service Corporation International (NYSE:SCI), around 2.2% of its 13F portfolio. Clough Capital Partners is also relatively very bullish on the stock, designating 0.53 percent of its 13F equity portfolio to SCI.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Service Corporation International (NYSE:SCI) headfirst. Renaissance Technologies, established the most outsized position in Service Corporation International (NYSE:SCI). Renaissance Technologies had $3.2 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also made a $2.9 million investment in the stock during the quarter. The other funds with brand new SCI positions are Ken Griffin's Citadel Investment Group, Michael Gelband's ExodusPoint Capital, and Dmitry Balyasny's Balyasny Asset Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Service Corporation International (NYSE:SCI) but similarly valued. We will take a look at PTC Inc (NASDAQ:PTC), Algonquin Power & Utilities Corp. (NYSE:AQN), Lennox International Inc. (NYSE:LII), and Arconic Corporation (NYSE:ARNC). All of these stocks' market caps are similar to SCI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTC,35,1181835,0 AQN,14,253831,1 LII,21,169377,-11 ARNC,25,1740220,-18 Average,23.75,836316,-7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $836 million. That figure was $398 million in SCI's case. PTC Inc (NASDAQ:PTC) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 14 bullish hedge fund positions. Service Corporation International (NYSE:SCI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately SCI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SCI were disappointed as the stock returned 0.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.