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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Sykes Enterprises, Incorporated (NASDAQ:SYKE).
Is SYKE a good stock to buy now? Sykes Enterprises, Incorporated (NASDAQ:SYKE) was in 13 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 18. SYKE investors should be aware of a decrease in support from the world's most elite money managers recently. There were 18 hedge funds in our database with SYKE holdings at the end of June. Our calculations also showed that SYKE 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.
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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital 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. Now we're going to take a gander at the latest hedge fund action encompassing Sykes Enterprises, Incorporated (NASDAQ:SYKE).
Do Hedge Funds Think SYKE Is A Good Stock To Buy Now?
At third quarter's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in SYKE a year ago. With hedgies' capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Sykes Enterprises, Incorporated (NASDAQ:SYKE). Arrowstreet Capital has a $15.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $14.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Cliff Asness's AQR Capital Management, Chuck Royce's Royce & Associates and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Sykes Enterprises, Incorporated (NASDAQ:SYKE), around 1.75% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, dishing out 0.77 percent of its 13F equity portfolio to SYKE.
Because Sykes Enterprises, Incorporated (NASDAQ:SYKE) has faced a decline in interest from the smart money, logic holds that there is a sect of hedge funds who were dropping their positions entirely by the end of the third quarter. It's worth mentioning that Richard S. Pzena's Pzena Investment Management dropped the biggest position of all the hedgies tracked by Insider Monkey, worth an estimated $4.7 million in stock. Ken Griffin's fund, Citadel Investment Group, also dumped its stock, about $1.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Sykes Enterprises, Incorporated (NASDAQ:SYKE). We will take a look at Murphy Oil Corporation (NYSE:MUR), LTC Properties Inc (NYSE:LTC), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Ebang International Holdings Inc. (NASDAQ:EBON), WSFS Financial Corporation (NASDAQ:WSFS), Knowles Corp (NYSE:KN), and MacroGenics Inc (NASDAQ:MGNX). This group of stocks' market caps are similar to SYKE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MUR,24,78785,9 LTC,9,10133,-6 ICPT,20,166374,-2 EBON,1,1584,1 WSFS,12,108404,-5 KN,23,218625,-1 MGNX,24,478699,3 Average,16.1,151801,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $47 million in SYKE's case. Murphy Oil Corporation (NYSE:MUR) is the most popular stock in this table. On the other hand Ebang International Holdings Inc. (NASDAQ:EBON) is the least popular one with only 1 bullish hedge fund positions. Sykes Enterprises, Incorporated (NASDAQ:SYKE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYKE is 47.8. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SYKE as the stock returned 15.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.