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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 Spectrum Brands Holdings, Inc. (NYSE:SPB).
Spectrum Brands Holdings, Inc. (NYSE:SPB) has seen a decrease in hedge fund sentiment of late. Spectrum Brands Holdings, Inc. (NYSE:SPB) was in 35 hedge funds' portfolios at the end of June. The all time high for this statistic is 45. There were 37 hedge funds in our database with SPB holdings at the end of March. Our calculations also showed that SPB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a peek at the new hedge fund action regarding Spectrum Brands Holdings, Inc. (NYSE:SPB).
Do Hedge Funds Think SPB Is A Good Stock To Buy Now?
At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in SPB a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Spectrum Brands Holdings, Inc. (NYSE:SPB) was held by Scopus Asset Management, which reported holding $114.8 million worth of stock at the end of June. It was followed by Pzena Investment Management with a $71 million position. Other investors bullish on the company included Cardinal Capital, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Spectrum Brands Holdings, Inc. (NYSE:SPB), around 14.99% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, earmarking 9.51 percent of its 13F equity portfolio to SPB.
Seeing as Spectrum Brands Holdings, Inc. (NYSE:SPB) has experienced falling interest from the smart money, it's safe to say that there lies a certain "tier" of funds who sold off their entire stakes heading into Q3. Interestingly, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $8.2 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $4.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to Spectrum Brands Holdings, Inc. (NYSE:SPB). These stocks are Shutterstock Inc (NYSE:SSTK), Vonage Holdings Corp. (NYSE:VG), Steven Madden, Ltd. (NASDAQ:SHOO), Merit Medical Systems, Inc. (NASDAQ:MMSI), AtriCure Inc. (NASDAQ:ATRC), INMODE LTD. (NASDAQ:INMD), and ViaSat, Inc. (NASDAQ:VSAT). All of these stocks' market caps resemble SPB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSTK,18,214408,0 VG,29,708094,-7 SHOO,18,157045,-1 MMSI,22,389076,4 ATRC,21,242542,7 INMD,26,298204,3 VSAT,22,1260800,-4 Average,22.3,467167,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $578 million in SPB's case. Vonage Holdings Corp. (NYSE:VG) is the most popular stock in this table. On the other hand Shutterstock Inc (NYSE:SSTK) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Spectrum Brands Holdings, Inc. (NYSE:SPB) is more popular among hedge funds. Our overall hedge fund sentiment score for SPB is 76.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 21.8% in 2021 through October 11th but still managed to beat the market by 4.4 percentage points. Hedge funds were also right about betting on SPB as the stock returned 12.6% since the end of June (through 10/11) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.