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Hedge Funds Were Getting Burned By South State Corporation (SSB) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on South State Corporation (NASDAQ:SSB).

Is South State Corporation (NASDAQ:SSB) a worthy investment now? Investors who are in the know are taking a bearish view. The number of bullish hedge fund bets decreased by 3 lately. Our calculations also showed that SSB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). SSB was in 15 hedge funds’ portfolios at the end of December. There were 18 hedge funds in our database with SSB positions at the end of the previous quarter.

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the key hedge fund action regarding South State Corporation (NASDAQ:SSB).

What does smart money think about South State Corporation (NASDAQ:SSB)?

At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in SSB a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in South State Corporation (NASDAQ:SSB), which was worth $47.1 million at the end of the third quarter. On the second spot was Basswood Capital which amassed $4.6 million worth of shares. Renaissance Technologies, Holocene Advisors, and Polaris 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 Basswood Capital allocated the biggest weight to South State Corporation (NASDAQ:SSB), around 0.32% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 0.3 percent of its 13F equity portfolio to SSB.

Due to the fact that South State Corporation (NASDAQ:SSB) has experienced declining sentiment from hedge fund managers, logic holds that there were a few hedgies that slashed their positions entirely in the third quarter. It’s worth mentioning that Mark Lee’s Forest Hill Capital dumped the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $6 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dumped its stock, about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to South State Corporation (NASDAQ:SSB). These stocks are Universal Forest Products, Inc. (NASDAQ:UFPI), NovaGold Resources Inc. (NYSE:NG), Evercore Inc. (NYSE:EVR), and Inovalon Holdings Inc (NASDAQ:INOV). This group of stocks’ market valuations are similar to SSB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UFPI 27 102127 5
NG 16 352933 0
EVR 32 316470 -1
INOV 16 82039 5
Average 22.75 213392 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $213 million. That figure was $63 million in SSB’s case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand NovaGold Resources Inc. (NYSE:NG) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks South State Corporation (NASDAQ:SSB) is even less popular than NG. Hedge funds dodged a bullet by taking a bearish stance towards SSB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately SSB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SSB investors were disappointed as the stock returned -34.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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