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Did Hedge Funds Make The Right Call On SciPlay Corporation (SCPL) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thought SciPlay Corporation (NASDAQ:SCPL) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

SciPlay Corporation (NASDAQ:SCPL) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that SCPL 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a glance at the new hedge fund action regarding SciPlay Corporation (NASDAQ:SCPL).

How have hedgies been trading SciPlay Corporation (NASDAQ:SCPL)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in SCPL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Park West Asset Management, managed by Peter S. Park, holds the biggest position in SciPlay Corporation (NASDAQ:SCPL). Park West Asset Management has a $31.7 million position in the stock, comprising 2.2% of its 13F portfolio. Sitting at the No. 2 spot is Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, which holds a $9.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Andrew Rechtschaffen’s AREX Capital Management, Ken Grossman and Glen Schneider’s SG Capital Management and Len Kipp and Xavier Majic’s Maple Rock Capital. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to SciPlay Corporation (NASDAQ:SCPL), around 10.04% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 3.13 percent of its 13F equity portfolio to SCPL.

As one would reasonably expect, key money managers have jumped into SciPlay Corporation (NASDAQ:SCPL) headfirst. Maple Rock Capital, managed by Len Kipp and Xavier Majic, assembled the most valuable position in SciPlay Corporation (NASDAQ:SCPL). Maple Rock Capital had $6.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.7 million position during the quarter. The following funds were also among the new SCPL investors: Renaissance Technologies, Marc Majzner’s Clearline Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks similar to SciPlay Corporation (NASDAQ:SCPL). These stocks are 360 Finance, Inc. (NASDAQ:QFIN), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), Installed Building Products Inc (NYSE:IBP), and Essential Properties Realty Trust, Inc. (NYSE:EPRT). This group of stocks’ market valuations are closest to SCPL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QFIN 3 10465 -9
WSC 28 187831 0
IBP 21 86225 -3
EPRT 8 11280 -1
Average 15 73950 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $80 million in SCPL’s case. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) is the most popular stock in this table. On the other hand 360 Finance, Inc. (NASDAQ:QFIN) is the least popular one with only 3 bullish hedge fund positions. SciPlay Corporation (NASDAQ:SCPL) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on SCPL as the stock returned 54.4% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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