At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Schneider National, Inc. (NYSE:SNDR) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in Schneider National, Inc. (NYSE:SNDR) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Enstar Group Ltd. (NASDAQ:ESGR), Houlihan Lokey Inc (NYSE:HLI), and Choice Hotels International, Inc. (NYSE:CHH) to gather more data points. Our calculations also showed that SNDR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to analyze the new hedge fund action encompassing Schneider National, Inc. (NYSE:SNDR).
What have hedge funds been doing with Schneider National, Inc. (NYSE:SNDR)?
At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SNDR over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Schneider National, Inc. (NYSE:SNDR), worth close to $10.8 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $10.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain John Overdeck and David Siegel’s Two Sigma Advisors, Noam Gottesman’s GLG Partners and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to Schneider National, Inc. (NYSE:SNDR), around 1.27% of its 13F portfolio. ACK Asset Management is also relatively very bullish on the stock, designating 0.69 percent of its 13F equity portfolio to SNDR.
Due to the fact that Schneider National, Inc. (NYSE:SNDR) has witnessed declining sentiment from the smart money, it’s easy to see that there is a sect of money managers who sold off their full holdings by the end of the first quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the largest investment of all the hedgies monitored by Insider Monkey, valued at about $30.7 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $3.3 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Schneider National, Inc. (NYSE:SNDR) but similarly valued. These stocks are Enstar Group Ltd. (NASDAQ:ESGR), Houlihan Lokey Inc (NYSE:HLI), Choice Hotels International, Inc. (NYSE:CHH), and Tata Motors Limited (NYSE:TTM). This group of stocks’ market caps resemble SNDR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $67 million in SNDR’s case. Choice Hotels International, Inc. (NYSE:CHH) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Schneider National, Inc. (NYSE:SNDR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on SNDR as the stock returned 27.9% in Q2 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.
Disclosure: None. This article was originally published at Insider Monkey.