Do Hedge Funds Love The Scotts Miracle-Gro Company (SMG)?

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of June 28th. In this article, we look at what those funds think of The Scotts Miracle-Gro Company (NYSE:SMG) based on that data.

The Scotts Miracle-Gro Company (NYSE:SMG) investors should be aware of an increase in hedge fund interest in recent months. SMG was in 24 hedge funds’ portfolios at the end of June. There were 16 hedge funds in our database with SMG holdings at the end of the previous quarter. Our calculations also showed that SMG isn’t among the 30 most popular stocks among hedge funds.

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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

David Harding

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the new hedge fund action regarding The Scotts Miracle-Gro Company (NYSE:SMG).

How have hedgies been trading The Scotts Miracle-Gro Company (NYSE:SMG)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SMG over the last 16 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

No of Hedge Funds with SMG Positions

Among these funds, Fisher Asset Management held the most valuable stake in The Scotts Miracle-Gro Company (NYSE:SMG), which was worth $143.6 million at the end of the second quarter. On the second spot was Markel Gayner Asset Management which amassed $37.2 million worth of shares. Moreover, Hudson Executive Capital, Winton Capital Management, and Citadel Investment Group were also bullish on The Scotts Miracle-Gro Company (NYSE:SMG), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Hudson Executive Capital, managed by Douglas Braunstein and James Woolery, established the largest position in The Scotts Miracle-Gro Company (NYSE:SMG). Hudson Executive Capital had $35.5 million invested in the company at the end of the quarter. Renaissance Technologies also made a $10 million investment in the stock during the quarter. The following funds were also among the new SMG investors: Steve Cohen’s Point72 Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Scotts Miracle-Gro Company (NYSE:SMG) but similarly valued. We will take a look at Ultrapar Participacoes SA (NYSE:UGP), argenx SE (NASDAQ:ARGX), Avalara, Inc. (NYSE:AVLR), and Companhia Energetica de Minas Gerais (NYSE:CIG). All of these stocks’ market caps match SMG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UGP 7 54213 -5
ARGX 22 791934 -2
AVLR 40 1166665 13
CIG 8 49080 -1
Average 19.25 515473 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $323 million in SMG’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 7 bullish hedge fund positions. The Scotts Miracle-Gro Company (NYSE:SMG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (view the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SMG, though not to the same extent, as the stock returned 4% during the third quarter and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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