Hedge Funds Are Dumping Sabre Corporation (SABR)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Sabre Corporation (NASDAQ:SABR).

Is Sabre Corporation (NASDAQ:SABR) undervalued? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions retreated by 9 lately. Our calculations also showed that SABR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

John Overdeck of Two Sigma

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a peek at the recent hedge fund action encompassing Sabre Corporation (NASDAQ:SABR).

What have hedge funds been doing with Sabre Corporation (NASDAQ:SABR)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in SABR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, D E Shaw held the most valuable stake in Sabre Corporation (NASDAQ:SABR), which was worth $22 million at the end of the second quarter. On the second spot was MD Sass which amassed $21.9 million worth of shares. Moreover, Echo Street Capital Management, Millennium Management, and Two Sigma Advisors were also bullish on Sabre Corporation (NASDAQ:SABR), allocating a large percentage of their portfolios to this stock.

Since Sabre Corporation (NASDAQ:SABR) has experienced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few fund managers that slashed their full holdings by the end of the second quarter. It’s worth mentioning that Jeffrey Talpins’s Element Capital Management cut the biggest investment of the 750 funds followed by Insider Monkey, comprising about $53.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $24.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks similar to Sabre Corporation (NASDAQ:SABR). These stocks are Phillips 66 Partners LP (NYSE:PSXP), Morningstar, Inc. (NASDAQ:MORN), Mellanox Technologies, Ltd. (NASDAQ:MLNX), and Genesee & Wyoming Inc (NYSE:GWR). This group of stocks’ market values resemble SABR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSXP 3 9904 -1
MORN 20 265985 -1
MLNX 39 1425612 -2
GWR 26 595964 4
Average 22 574366 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $574 million. That figure was $140 million in SABR’s case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 3 bullish hedge fund positions. Sabre Corporation (NASDAQ:SABR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SABR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SABR investors were disappointed as the stock returned 1.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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