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Hedge Funds Are Dumping The Simply Good Foods Company (SMPL)

During the first half of the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of The Simply Good Foods Company (NASDAQ:SMPL) and see how the stock is affected by the recent hedge fund activity.

The Simply Good Foods Company (NASDAQ:SMPL) investors should pay attention to a decrease in hedge fund interest recently. SMPL was in 23 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with SMPL holdings at the end of the previous quarter. Our calculations also showed that SMPL 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 18 percentage points since May 2014 through December 3, 2018 (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.

MILLENNIUM MANAGEMENT

We’re going to take a look at the new hedge fund action encompassing The Simply Good Foods Company (NASDAQ:SMPL).

How are hedge funds trading The Simply Good Foods Company (NASDAQ:SMPL)?

At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in SMPL heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SMPL_dec2018

The largest stake in The Simply Good Foods Company (NASDAQ:SMPL) was held by Millennium Management, which reported holding $57.9 million worth of stock at the end of September. It was followed by D E Shaw with a $32.2 million position. Other investors bullish on the company included Woodson Capital Management, Ratan Capital Group, and Nitorum Capital.

Because The Simply Good Foods Company (NASDAQ:SMPL) has faced declining sentiment from hedge fund managers, logic holds that there were a few funds who were dropping their full holdings in the third quarter. At the top of the heap, Steven Boyd’s Armistice Capital cut the largest stake of the 700 funds tracked by Insider Monkey, worth an estimated $21.1 million in stock. John M. Angelo and Michael L. Gordon’s fund, Angelo Gordon & Co, also cut its stock, about $10.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Simply Good Foods Company (NASDAQ:SMPL) but similarly valued. We will take a look at X Financial (NYSE:XYF), Keane Group, Inc. (NYSE:FRAC), MaxLinear, Inc. (NYSE:MXL), and Mitel Networks Corporation (NASDAQ:MITL). All of these stocks’ market caps resemble SMPL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XYF 4 7649 4
FRAC 18 648147 -1
MXL 4 37671 -4
MITL 27 305555 -3
Average 13.25 249756 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $238 million in SMPL’s case. Mitel Networks Corporation (NASDAQ:MITL) is the most popular stock in this table. On the other hand 0 is the least popular one with only 4 bullish hedge fund positions. The Simply Good Foods Company (NASDAQ:SMPL) 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. In this regard MITL might be a better candidate to consider a long position.

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

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