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Do Hedge Funds Love Sculptor Capital Management, Inc. (SCU)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Sculptor Capital Management, Inc. (NYSE:SCU) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Sculptor Capital Management, Inc. (NYSE:SCU) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SCU to other stocks including Xperi Holding Corporation (NASDAQ:XPER), Republic Bancorp, Inc. (NASDAQ:RBCAA), and GreenSky, Inc. (NASDAQ:GSKY) to get a better sense of its popularity.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

David Abrams

David Abrams of Abrams 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 we’re going to go over the new hedge fund action encompassing Sculptor Capital Management, Inc. (NYSE:SCU).

How are hedge funds trading Sculptor Capital Management, Inc. (NYSE:SCU)?

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SCU over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Abrams Capital Management held the most valuable stake in Sculptor Capital Management, Inc. (NYSE:SCU), which was worth $27.9 million at the end of the third quarter. On the second spot was Samlyn Capital which amassed $19.9 million worth of shares. Toscafund Asset Management, Odey Asset Management Group, and Miller Value 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 Toscafund Asset Management allocated the biggest weight to Sculptor Capital Management, Inc. (NYSE:SCU), around 44.77% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, designating 2.6 percent of its 13F equity portfolio to SCU.

Since Sculptor Capital Management, Inc. (NYSE:SCU) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds who were dropping their full holdings heading into Q4. Intriguingly, Thomas Ellis and Todd Hammer’s North Run Capital dumped the largest position of all the hedgies monitored by Insider Monkey, comprising about $4.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.8 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Sculptor Capital Management, Inc. (NYSE:SCU). These stocks are Xperi Holding Corporation (NASDAQ:XPER), Republic Bancorp, Inc. (NASDAQ:RBCAA), GreenSky, Inc. (NASDAQ:GSKY), and Associated Capital Group, Inc. (NYSE:AC). This group of stocks’ market caps match SCU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XPER 20 108532 -3
RBCAA 5 8845 -3
GSKY 9 14686 -3
AC 6 53890 0
Average 10 46488 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $72 million in SCU’s case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Republic Bancorp, Inc.(NASDAQ:RBCAA) is the least popular one with only 5 bullish hedge fund positions. Sculptor Capital Management, Inc. (NYSE:SCU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 15.5 percentage points. Unfortunately SCU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SCU were disappointed as the stock returned -4.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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