Did Hedge Funds Drop The Ball On Smart & Final Stores Inc (SFS) ?

We at Insider Monkey have gone over 738 13F filings that hedge funds and famous value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article we look at what those investors think of Smart & Final Stores Inc (NYSE:SFS).

Smart & Final Stores Inc (NYSE:SFS) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that SFS 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Let’s take a peek at the key hedge fund action regarding Smart & Final Stores Inc (NYSE:SFS).

What have hedge funds been doing with Smart & Final Stores Inc (NYSE:SFS)?

Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in SFS a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

No of Hedge Funds with SFS Positions

The largest stake in Smart & Final Stores Inc (NYSE:SFS) was held by Cove Street Capital, which reported holding $15.1 million worth of stock at the end of March. It was followed by Royce & Associates with a $3.6 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Arrowstreet Capital.

Judging by the fact that Smart & Final Stores Inc (NYSE:SFS) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their positions entirely by the end of the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $0.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Smart & Final Stores Inc (NYSE:SFS) but similarly valued. We will take a look at RBB Bancorp (NASDAQ:RBB), The Meet Group, Inc. (NASDAQ:MEET), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), and The Lovesac Company (NASDAQ:LOVE). All of these stocks’ market caps resemble SFS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBB 5 8338 2
MEET 15 75550 5
BDSI 18 124266 3
LOVE 8 30396 1
Average 11.5 59638 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $24 million in SFS’s case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand RBB Bancorp (NASDAQ:RBB) is the least popular one with only 5 bullish hedge fund positions. Smart & Final Stores Inc (NYSE:SFS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on SFS as the stock returned 31.6% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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