Was The Smart Money Right About Sleep Number Corporation (SNBR)?
Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. Keeping this in mind let's see whether Sleep Number Corporation (NASDAQ:SNBR) represents a good buying opportunity at the moment.
Is Sleep Number Corporation (NASDAQ:SNBR) worth your attention right now? The smart money is betting on the stock. The number of long hedge fund bets increased by 2 in recent months. Our calculations also showed that SNBR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you'd ask most stock holders, hedge funds are assumed to be slow, old financial vehicles of the past. While there are over 8000 funds with their doors open at the moment, Our experts choose to focus on the top tier of this club, around 850 funds. It is estimated that this group of investors command most of the hedge fund industry's total asset base, and by tracking their inimitable picks, Insider Monkey has figured out various investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_745225" align="aligncenter" width="400"]
Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's review the key hedge fund action surrounding Sleep Number Corporation (NASDAQ:SNBR).
What does smart money think about Sleep Number Corporation (NASDAQ:SNBR)?
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SNBR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Sleep Number Corporation (NASDAQ:SNBR) was held by D E Shaw, which reported holding $52.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $39 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Maverick Capital allocated the biggest weight to Sleep Number Corporation (NASDAQ:SNBR), around 0.19% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to SNBR.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in Sleep Number Corporation (NASDAQ:SNBR). Marshall Wace LLP had $3.8 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $2.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Jinghua Yan's TwinBeech Capital, Hoon Kim's Quantinno Capital, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Sleep Number Corporation (NASDAQ:SNBR) but similarly valued. These stocks are Myovant Sciences Ltd. (NYSE:MYOV), Alliance Resource Partners, L.P. (NASDAQ:ARLP), Atrion Corporation (NASDAQ:ATRI), and EnPro Industries, Inc. (NYSE:NPO). This group of stocks' market values match SNBR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MYOV,10,66183,-6 ARLP,4,60275,-3 ATRI,15,90026,-2 NPO,14,173659,-2 Average,10.75,97536,-3.25 [/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 $98 million. That figure was $191 million in SNBR's case. Atrion Corporation (NASDAQ:ATRI) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Sleep Number Corporation (NASDAQ:SNBR) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately SNBR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SNBR were disappointed as the stock returned -39.8% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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