Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Simpson Manufacturing Co, Inc. (NYSE:SSD) to find out whether it was one of their high conviction long-term ideas.
Simpson Manufacturing Co, Inc. (NYSE:SSD) was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. SSD investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 17 hedge funds in our database with SSD holdings at the end of the previous quarter. Our calculations also showed that SSD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the fresh hedge fund action regarding Simpson Manufacturing Co, Inc. (NYSE:SSD).
What does smart money think about Simpson Manufacturing Co, Inc. (NYSE:SSD)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in SSD over the last 17 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Simpson Manufacturing Co, Inc. (NYSE:SSD) was held by Ariel Investments, which reported holding $116.8 million worth of stock at the end of September. It was followed by Royce & Associates with a $45.2 million position. Other investors bullish on the company included Arrowstreet Capital, Fisher Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Simpson Manufacturing Co, Inc. (NYSE:SSD), around 1.56% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to SSD.
Since Simpson Manufacturing Co, Inc. (NYSE:SSD) has witnessed falling interest from hedge fund managers, it’s easy to see that there was a specific group of hedgies that decided to sell off their entire stakes heading into Q4. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $10 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.8 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Simpson Manufacturing Co, Inc. (NYSE:SSD) but similarly valued. We will take a look at Liberty Latin America Ltd. (NASDAQ:LILAK), Eldorado Resorts Inc (NASDAQ:ERI), Cronos Group Inc. (NASDAQ:CRON), and CenterState Bank Corporation (NASDAQ:CSFL). This group of stocks’ market valuations are similar to SSD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LILAK | 20 | 375106 | -2 |
| ERI | 44 | 1020275 | 7 |
| CRON | 11 | 93920 | 3 |
| CSFL | 12 | 83804 | -3 |
| Average | 21.75 | 393276 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $215 million in SSD’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 11 bullish hedge fund positions. Simpson Manufacturing Co, Inc. (NYSE:SSD) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on SSD as the stock returned 17.4% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
