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Did Hedge Funds Drop The Ball On Scotts Miracle-Gro Company (SMG) ?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to The Scotts Miracle-Gro Company (NYSE:SMG) changed recently.

The Scotts Miracle-Gro Company (NYSE:SMG) investors should pay attention to a decrease in hedge fund sentiment of late. Our calculations also showed that smg 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’ 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 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 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.

GOTHAM ASSET MANAGEMENT

We’re going to analyze the latest hedge fund action encompassing The Scotts Miracle-Gro Company (NYSE:SMG).

Hedge fund activity in The Scotts Miracle-Gro Company (NYSE:SMG)

At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SMG over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds With SMG Positions

The largest stake in The Scotts Miracle-Gro Company (NYSE:SMG) was held by Fisher Asset Management, which reported holding $93.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $20.1 million position. Other investors bullish on the company included Gotham Asset Management, Markel Gayner Asset Management, and Winton Capital Management.

Judging by the fact that The Scotts Miracle-Gro Company (NYSE:SMG) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that slashed their entire stakes last quarter. At the top of the heap, Roberto Mignone’s Bridger Management dropped the largest position of the 700 funds monitored by Insider Monkey, comprising an estimated $29.1 million in stock. Gilchrist Berg’s fund, Water Street Capital, also dropped its stock, about $16.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to The Scotts Miracle-Gro Company (NYSE:SMG). We will take a look at Graham Holdings Co (NYSE:GHC), Performance Food Group Company (NYSE:PFGC), argenx SE (NASDAQ:ARGX), and Zynga Inc (NASDAQ:ZNGA). This group of stocks’ market valuations match SMG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GHC 19 615026 2
PFGC 18 159221 -5
ARGX 27 709744 -7
ZNGA 29 725450 3
Average 23.25 552360 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $552 million. That figure was $187 million in SMG’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Performance Food Group Company (NYSE:PFGC) is the least popular one with only 18 bullish hedge fund positions. The Scotts Miracle-Gro Company (NYSE:SMG) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SMG as the stock returned 35.8% and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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