Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Star Group, L.P. (NYSE:SGU) has experienced a decrease in hedge fund sentiment in recent months. SGU was in 8 hedge funds' portfolios at the end of December. There were 9 hedge funds in our database with SGU holdings at the end of the previous quarter. Our calculations also showed that sgu isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's check out the latest hedge fund action encompassing Star Group, L.P. (NYSE:SGU).
How are hedge funds trading Star Group, L.P. (NYSE:SGU)?
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SGU over the last 14 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Bandera Partners was the largest shareholder of Star Group, L.P. (NYSE:SGU), with a stake worth $32.4 million reported as of the end of December. Trailing Bandera Partners was Cat Rock Capital, which amassed a stake valued at $29.1 million. Moab Capital Partners, Locust Wood Capital Advisers, 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: Citadel Investment Group. 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 SGU as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks similar to Star Group, L.P. (NYSE:SGU). These stocks are First Financial Corp (NASDAQ:THFF), SunCoke Energy Partners LP (NYSE:SXCP), America's Car-Mart, Inc. (NASDAQ:CRMT), and Heritage Commerce Corp. (NASDAQ:HTBK). This group of stocks' market caps are similar to SGU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THFF,5,16653,-2 SXCP,5,1900,-1 CRMT,18,70778,2 HTBK,9,21854,-1 Average,9.25,27796,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $112 million in SGU's case. America's Car-Mart, Inc. (NASDAQ:CRMT) is the most popular stock in this table. On the other hand First Financial Corp (NASDAQ:THFF) is the least popular one with only 5 bullish hedge fund positions. Star Group, L.P. (NYSE:SGU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately SGU wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); SGU investors were disappointed as the stock returned 4.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.