Hedge Funds Aren’t Crazy About Santander Consumer USA Holdings Inc (SC) Anymore

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Santander Consumer USA Holdings Inc (NYSE:SC).

Santander Consumer USA Holdings Inc (NYSE:SC) has experienced a decrease in hedge fund sentiment of late. SC was in 23 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with SC positions 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 Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are viewed as underperforming, outdated financial vehicles of years past. While there are greater than 8000 funds with their doors open today, Our researchers hone in on the moguls of this club, around 750 funds. These money managers manage most of the hedge fund industry’s total asset base, and by tailing their top stock picks, Insider Monkey has determined a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the key 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)?

Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SC over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Canyon Capital Advisors was the largest shareholder of Santander Consumer USA Holdings Inc (NYSE:SC), with a stake worth $270.9 million reported as of the end of September. Trailing Canyon Capital Advisors was Windacre Partnership, which amassed a stake valued at $200.9 million. Samlyn Capital, Arrowstreet Capital, and Renaissance Technologies 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 Windacre Partnership allocated the biggest weight to Santander Consumer USA Holdings Inc (NYSE:SC), around 10.05% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, setting aside 5.85 percent of its 13F equity portfolio to SC.

Seeing as Santander Consumer USA Holdings Inc (NYSE:SC) has faced bearish sentiment from hedge fund managers, it’s safe to say that there were a few funds that slashed their full holdings heading into Q4. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the largest position of the 750 funds monitored by Insider Monkey, valued at an estimated $18 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dropped about $13.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Santander Consumer USA Holdings Inc (NYSE:SC). We will take a look at HollyFrontier Corporation (NYSE:HFC), Kimco Realty Corp (NYSE:KIM), AGNC Investment Corp. (NASDAQ:AGNC), and MGM Growth Properties LLC (NYSE:MGP). All of these stocks’ market caps resemble SC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HFC 27 544455 2
KIM 11 100029 -8
AGNC 15 126937 -8
MGP 18 307511 4
Average 17.75 269733 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $795 million in SC’s case. HollyFrontier Corporation (NYSE:HFC) is the most popular stock in this table. On the other hand Kimco Realty Corp (NYSE:KIM) is the least popular one with only 11 bullish hedge fund positions. Santander Consumer USA Holdings Inc (NYSE:SC) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -6.9% during the fourth quarter (through the end of November) 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 this year.

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