It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like SeaWorld Entertainment Inc (NYSE:SEAS) and compare its performance against hedge funds’ favorite stocks.
SeaWorld Entertainment Inc (NYSE:SEAS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), Corrections Corp Of America (NYSE:CXW), and 8×8, Inc. (NASDAQ:EGHT) to gather more data points. Our calculations also showed that SEAS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the new hedge fund action surrounding SeaWorld Entertainment Inc (NYSE:SEAS).
How have hedgies been trading SeaWorld Entertainment Inc (NYSE:SEAS)?
At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in SEAS 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 SeaWorld Entertainment Inc (NYSE:SEAS) was held by Hill Path Capital, which reported holding $716 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $52.8 million position. Other investors bullish on the company included Simcoe Capital Management, Arrowstreet Capital, and Shellback Capital. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 91.04% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, dishing out 11.45 percent of its 13F equity portfolio to SEAS.
Due to the fact that SeaWorld Entertainment Inc (NYSE:SEAS) has experienced a decline in interest from the smart money, it’s safe to say that there is a sect of fund managers that elected to cut their positions entirely heading into Q4. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the largest investment of all the hedgies monitored by Insider Monkey, valued at about $42.8 million in call options, and Curtis Schenker and Craig Effron’s Scoggin was right behind this move, as the fund said goodbye to about $26.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). These stocks are Alliance Resource Partners, L.P. (NASDAQ:ARLP), Corrections Corp Of America (NYSE:CXW), 8×8, Inc. (NASDAQ:EGHT), and Endava plc (NYSE:DAVA). This group of stocks’ market caps resemble SEAS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARLP | 7 | 89565 | -2 |
| CXW | 17 | 173840 | 3 |
| EGHT | 22 | 452982 | 2 |
| DAVA | 5 | 44044 | -3 |
| Average | 12.75 | 190108 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $999 million in SEAS’s case. 8×8, Inc. (NASDAQ:EGHT) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SEAS as the stock returned 47.7% so far in 2019 (through 12/23) 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.
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.
