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Hedge Funds Are Selling Select Medical Holdings Corporation (SEM)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Select Medical Holdings Corporation (NYSE:SEM).

Select Medical Holdings Corporation (NYSE:SEM) has experienced a decrease in hedge fund sentiment of late. SEM was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with SEM positions at the end of the previous quarter. Our calculations also showed that SEM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing Select Medical Holdings Corporation (NYSE:SEM).

Hedge fund activity in Select Medical Holdings Corporation (NYSE:SEM)

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in SEM a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Select Medical Holdings Corporation (NYSE:SEM), which was worth $19.1 million at the end of the third quarter. On the second spot was Deerfield Management which amassed $15.9 million worth of shares. Point72 Asset Management, Arrowstreet Capital, and PAR Capital Management 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 Sivik Global Healthcare allocated the biggest weight to Select Medical Holdings Corporation (NYSE:SEM), around 1.64% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 0.51 percent of its 13F equity portfolio to SEM.

Seeing as Select Medical Holdings Corporation (NYSE:SEM) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of funds who sold off their positions entirely in the first quarter. At the top of the heap, Israel Englander’s Millennium Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $11 million in stock, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital was right behind this move, as the fund dropped about $1.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Select Medical Holdings Corporation (NYSE:SEM). We will take a look at TC Pipelines, LP (NYSE:TCP), Associated Banc Corp (NYSE:ASB), Paramount Group Inc (NYSE:PGRE), and The Ensign Group, Inc. (NASDAQ:ENSG). This group of stocks’ market caps match SEM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TCP 2 9665 -1
ASB 16 124559 -8
PGRE 19 154841 -1
ENSG 18 88885 3
Average 13.75 94488 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $107 million in SEM’s case. Paramount Group Inc (NYSE:PGRE) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Select Medical Holdings Corporation (NYSE:SEM) 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 13.4% in 2020 through June 22nd but beat the market by 15.9 percentage points. Unfortunately SEM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SEM were disappointed as the stock returned -4% 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.