At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Select Medical Holdings Corporation (NYSE:SEM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Select Medical Holdings Corporation (NYSE:SEM) a worthy investment today? Money managers were buying. The number of bullish hedge fund bets moved up by 4 in recent months. Select Medical Holdings Corporation (NYSE:SEM) was in 22 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. Our calculations also showed that SEM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with SEM holdings at the end of March. Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
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Hedge fund activity in Select Medical Holdings Corporation (NYSE:SEM)
Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SEM over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Point72 Asset Management, managed by Steve Cohen, holds the number one position in Select Medical Holdings Corporation (NYSE:SEM). Point72 Asset Management has a $30.9 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $11.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Krishen Sud's Sivik Global Healthcare, James E. Flynn's Deerfield Management and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Sivik Global Healthcare allocated the biggest weight to Select Medical Holdings Corporation (NYSE:SEM), around 2.79% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 0.24 percent of its 13F equity portfolio to SEM.
As one would reasonably expect, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the most outsized position in Select Medical Holdings Corporation (NYSE:SEM). Millennium Management had $2.4 million invested in the company at the end of the quarter. Jonathan Soros's JS Capital also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka's AlphaCrest Capital Management, Paul Tudor Jones's Tudor Investment Corp, and Jerome Pfund and Michael Sjostrom's Sectoral Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Select Medical Holdings Corporation (NYSE:SEM) but similarly valued. These stocks are Yext, Inc. (NYSE:YEXT), National Storage Affiliates Trust (NYSE:NSA), Golub Capital BDC Inc (NASDAQ:GBDC), Akebia Therapeutics Inc (NASDAQ:AKBA), American National Group, Inc. (NASDAQ:ANAT), Wolverine World Wide, Inc. (NYSE:WWW), and Embotelladora Andina S.A. (NYSE:AKO). This group of stocks' market valuations resemble SEM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YEXT,10,31408,1 NSA,13,54586,-5 GBDC,16,42799,3 AKBA,25,618091,7 ANAT,10,36359,-4 WWW,17,75033,-5 AKO,2,11948,0 Average,13.3,124318,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $93 million in SEM's case. Akebia Therapeutics Inc (NASDAQ:AKBA) is the most popular stock in this table. On the other hand Embotelladora Andina S.A. (NYSE:AKO) is the least popular one with only 2 bullish hedge fund positions. Select Medical Holdings Corporation (NYSE:SEM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SEM is 77.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on SEM as the stock returned 41.3% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.