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Do Hedge Funds Really Love Santander Consumer USA Holdings Inc (SC)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Santander Consumer USA Holdings Inc (NYSE:SC) in this article.

Santander Consumer USA Holdings Inc (NYSE:SC) has experienced an increase in support from the world’s most elite money managers of late. SC was in 27 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with SC holdings at the end of the previous quarter. Our calculations also showed that SC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action encompassing Santander Consumer USA Holdings Inc (NYSE:SC).

What have hedge funds been doing with Santander Consumer USA Holdings Inc (NYSE:SC)?

At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Santander Consumer USA Holdings Inc (NYSE:SC) was held by Canyon Capital Advisors, which reported holding $326.6 million worth of stock at the end of September. It was followed by Windacre Partnership with a $201.2 million position. Other investors bullish on the company included Samlyn Capital, Arrowstreet Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Windacre Partnership allocated the biggest weight to Santander Consumer USA Holdings Inc (NYSE:SC), around 10.47% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, setting aside 7.61 percent of its 13F equity portfolio to SC.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Santander Consumer USA Holdings Inc (NYSE:SC). Point72 Asset Management had $29.9 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Jinghua Yan’s TwinBeech Capital, Paul Tudor Jones’s Tudor Investment Corp, and Matthew Tewksbury’s Stevens Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Santander Consumer USA Holdings Inc (NYSE:SC) but similarly valued. We will take a look at Huaneng Power International Inc (NYSE:HNP), American Homes 4 Rent (NYSE:AMH), Logitech International SA (NASDAQ:LOGI), and Bruker Corporation (NASDAQ:BRKR). This group of stocks’ market values match SC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HNP 3 2790 -1
AMH 23 320922 -4
LOGI 13 255513 -3
BRKR 25 262302 3
Average 16 210382 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $845 million in SC’s case. Bruker Corporation (NASDAQ:BRKR) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Santander Consumer USA Holdings Inc (NYSE:SC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately SC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SC were disappointed as the stock returned -31.3% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.

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