Did Hedge Funds Make The Right Call On SeaWorld Entertainment Inc (SEAS) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards SeaWorld Entertainment Inc (NYSE:SEAS) and determine whether hedge funds skillfully traded this stock.

SeaWorld Entertainment Inc (NYSE:SEAS) investors should pay attention to a decrease in hedge fund sentiment in recent months. Our calculations also showed that SEAS 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the latest hedge fund action surrounding SeaWorld Entertainment Inc (NYSE:SEAS).

Hedge fund activity in SeaWorld Entertainment Inc (NYSE:SEAS)

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in SEAS a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Hill Path Capital held the most valuable stake in SeaWorld Entertainment Inc (NYSE:SEAS), which was worth $299.8 million at the end of the third quarter. On the second spot was HG Vora Capital Management which amassed $57.9 million worth of shares. Renaissance Technologies, Simcoe Capital Management, and MIC Capital Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 91.43% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, dishing out 6.58 percent of its 13F equity portfolio to SEAS.

Because SeaWorld Entertainment Inc (NYSE:SEAS) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $42 million in stock. Guy Shahar’s fund, DSAM Partners, also dropped its stock, about $18.5 million worth. These transactions are interesting, as total hedge fund interest fell by 12 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). These stocks are Encore Wire Corporation (NASDAQ:WIRE), Esperion Therapeutics, Inc. (NASDAQ:ESPR), Dillard’s, Inc. (NYSE:DDS), and Diversified Healthcare Trust (NASDAQ:DHC). This group of stocks’ market values are similar to SEAS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WIRE 14 33051 1
ESPR 18 190538 3
DDS 13 125316 -7
DHC 10 12170 1
Average 13.75 90269 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $456 million in SEAS’s case. Esperion Therapeutics, Inc. (NASDAQ:ESPR) is the most popular stock in this table. On the other hand Diversified Healthcare Trust (NASDAQ:DHC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) 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 SEAS as the stock returned 34.4% 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.

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