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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Smart Sand, Inc. (NASDAQ:SND)? The smart money sentiment can provide an answer to this question.
Is Smart Sand (SND) a good stock to buy now? SND was in 5 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. SND has seen a decrease in hedge fund interest recently. There were 8 hedge funds in our database with SND holdings at the end of June. Our calculations also showed that SND isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Eric Sprott of Sprott Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to take a gander at the new hedge fund action encompassing Smart Sand, Inc. (NASDAQ:SND).
What does smart money think about Smart Sand, Inc. (NASDAQ:SND)?
At third quarter's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the second quarter of 2020. By comparison, 10 hedge funds held shares or bullish call options in SND a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sprott Asset Management, managed by Eric Sprott, holds the biggest position in Smart Sand, Inc. (NASDAQ:SND). Sprott Asset Management has a $1.3 million position in the stock, comprising 0.1% of its 13F portfolio. On Sprott Asset Management's heels is Mark G. Schoeppner of Quaker Capital Investments, with a $0.3 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include Israel Englander's Millennium Management, Renaissance Technologies and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners. In terms of the portfolio weights assigned to each position Quaker Capital Investments allocated the biggest weight to Smart Sand, Inc. (NASDAQ:SND), around 0.16% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to SND.
Due to the fact that Smart Sand, Inc. (NASDAQ:SND) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there were a few fund managers who sold off their full holdings last quarter. At the top of the heap, Roger Ibbotson's Zebra Capital Management said goodbye to the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $0.1 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund sold off about $0.1 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Smart Sand, Inc. (NASDAQ:SND) but similarly valued. These stocks are Digital Ally, Inc. (NASDAQ:DGLY), Canterbury Park Holding Corporation (NASDAQ:CPHC), Jupai Holdings Limited (NYSE:JP), Nicholas Financial, Inc. (NASDAQ:NICK), Exela Technologies, Inc. (NASDAQ:XELA), Allena Pharmaceuticals, Inc. (NASDAQ:ALNA), and HyreCar Inc. (NASDAQ:HYRE). This group of stocks' market valuations are similar to SND's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DGLY,1,411,-2 CPHC,1,5301,0 JP,1,261,-1 NICK,3,19199,0 XELA,5,6710,-4 ALNA,2,5350,-4 HYRE,8,10722,2 Average,3,6851,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $2 million in SND's case. HyreCar Inc. (NASDAQ:HYRE) is the most popular stock in this table. On the other hand Digital Ally, Inc. (NASDAQ:DGLY) is the least popular one with only 1 bullish hedge fund positions. Smart Sand, Inc. (NASDAQ:SND) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SND is 44.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on SND as the stock returned 50.4% since the end of Q3 (through 11/27) 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.