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Did Hedge Funds Make The Right Call On Steelcase Inc. (SCS) ?

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 Steelcase Inc. (NYSE:SCS) and determine whether hedge funds skillfully traded this stock.

Is Steelcase Inc. (NYSE:SCS) a safe stock to buy now? Money managers were turning less bullish. The number of bullish hedge fund positions went down by 7 recently. Our calculations also showed that SCS 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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 let’s analyze the key hedge fund action surrounding Steelcase Inc. (NYSE:SCS).

Hedge fund activity in Steelcase Inc. (NYSE:SCS)

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SCS over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Steelcase Inc. (NYSE:SCS), which was worth $17.7 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $13.8 million worth of shares. Pzena Investment Management, Two Sigma Advisors, and AQR Capital Management 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 Arjuna Capital allocated the biggest weight to Steelcase Inc. (NYSE:SCS), around 0.31% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to SCS.

Judging by the fact that Steelcase Inc. (NYSE:SCS) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers who sold off their full holdings by the end of the first quarter. Interestingly, Israel Englander’s Millennium Management said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $12 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $9.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 7 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Steelcase Inc. (NYSE:SCS) but similarly valued. These stocks are First Bancorp (NYSE:FBP), Verra Mobility Corporation (NASDAQ:VRRM), BrightView Holdings, Inc. (NYSE:BV), and Rush Enterprises, Inc. (NASDAQ:RUSHA). This group of stocks’ market values resemble SCS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBP 24 132891 -8
VRRM 23 105855 -10
BV 8 160603 -1
RUSHA 17 43687 -7
Average 18 110759 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $64 million in SCS’s case. First Bancorp (NYSE:FBP) is the most popular stock in this table. On the other hand BrightView Holdings, Inc. (NYSE:BV) is the least popular one with only 8 bullish hedge fund positions. Steelcase Inc. (NYSE:SCS) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SCS, though not to the same extent, as the stock returned 23.2% during the second quarter and outperformed the market as well.

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