Do Hedge Funds Love Scientific Games Corp (SGMS)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Scientific Games Corp (NASDAQ:SGMS) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Scientific Games Corp (NASDAQ:SGMS) an attractive investment right now? The best stock pickers were in an optimistic mood. The number of long hedge fund positions moved up by 2 in recent months. Scientific Games Corp (NASDAQ:SGMS) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. Our calculations also showed that SGMS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 22 hedge funds in our database with SGMS positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds trading today, Our researchers choose to focus on the aristocrats of this club, about 850 funds. These money managers direct most of the smart money’s total asset base, and by following their highest performing equity investments, Insider Monkey has found many investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Cliff Asness of AQR Capital Management

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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the key hedge fund action surrounding Scientific Games Corp (NASDAQ:SGMS).

What have hedge funds been doing with Scientific Games Corp (NASDAQ:SGMS)?

At second quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in SGMS a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Fine Capital Partners was the largest shareholder of Scientific Games Corp (NASDAQ:SGMS), with a stake worth $140.9 million reported as of the end of September. Trailing Fine Capital Partners was Sylebra Capital Management, which amassed a stake valued at $133.3 million. Nantahala Capital Management, Stone House Capital, and Millennium 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 Fine Capital Partners allocated the biggest weight to Scientific Games Corp (NASDAQ:SGMS), around 69.06% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, earmarking 68.18 percent of its 13F equity portfolio to SGMS.

As industrywide interest jumped, some big names have jumped into Scientific Games Corp (NASDAQ:SGMS) headfirst. AQR Capital Management, managed by Cliff Asness, initiated the largest position in Scientific Games Corp (NASDAQ:SGMS). AQR Capital Management had $3.5 million invested in the company at the end of the quarter. Stephen Mildenhall’s Contrarius Investment Management also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new SGMS investors: Michael Gelband’s ExodusPoint Capital, Greg Eisner’s Engineers Gate Manager, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. We will take a look at Mednax Inc. (NYSE:MD), WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), WSFS Financial Corporation (NASDAQ:WSFS), Belden Inc. (NYSE:BDC), Resideo Technologies, Inc. (NYSE:REZI), Beam Therapeutics Inc. (NASDAQ:BEAM), and So-Young International Inc. (NASDAQ:SY). All of these stocks’ market caps are closest to SGMS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MD 23 356799 -3
WSC 31 283379 3
WSFS 17 118488 5
BDC 19 89326 5
REZI 20 367520 -5
BEAM 10 238351 -1
SY 7 16753 1
Average 18.1 210088 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $374 million in SGMS’s case. WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC) is the most popular stock in this table. On the other hand So-Young International Inc. (NASDAQ:SY) is the least popular one with only 7 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SGMS is 64.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on SGMS as the stock returned 129.1% during Q3 (through September 25th) 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.