Hedge Funds Are Selling Service Corporation International (SCI)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Service Corporation International (NYSE:SCI) based on that data and determine whether they were really smart about the stock.

Is Service Corporation International (NYSE:SCI) going to take off soon? Prominent investors were turning less bullish. The number of long hedge fund bets were trimmed by 3 in recent months. Service Corporation International (NYSE:SCI) was in 27 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. Our calculations also showed that SCI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the new hedge fund action regarding Service Corporation International (NYSE:SCI).

How are hedge funds trading Service Corporation International (NYSE:SCI)?

At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in SCI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of Service Corporation International (NYSE:SCI), with a stake worth $445.9 million reported as of the end of September. Trailing Select Equity Group was Arrowstreet Capital, which amassed a stake valued at $30.5 million. Two Sigma Advisors, Millennium Management, and Winton 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 Select Equity Group allocated the biggest weight to Service Corporation International (NYSE:SCI), around 2.56% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.16 percent of its 13F equity portfolio to SCI.

Judging by the fact that Service Corporation International (NYSE:SCI) has faced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely heading into Q3. Intriguingly, Charles Clough’s Clough Capital Partners dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $5.3 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $3.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Service Corporation International (NYSE:SCI) but similarly valued. We will take a look at Howmet Aerospace Inc. (NYSE:HWM), Solaredge Technologies Inc (NASDAQ:SEDG), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), Westlake Chemical Corporation (NYSE:WLK), Cabot Oil & Gas Corporation (NYSE:COG), Algonquin Power & Utilities Corp. (NYSE:AQN), and Watsco Inc (NYSE:WSO). All of these stocks’ market caps are similar to SCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HWM 30 2360525 5
SEDG 25 435719 -2
SQM 14 91324 4
WLK 29 165262 9
COG 31 237488 -6
AQN 13 283894 -1
WSO 21 229597 1
Average 23.3 543401 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $543 million. That figure was $524 million in SCI’s case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 bullish hedge fund positions. Service Corporation International (NYSE:SCI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SCI is 62.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on SCI as the stock returned 8.8% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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