With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was ServiceMaster Global Holdings Inc (NYSE:SERV).
ServiceMaster Global Holdings Inc (NYSE:SERV) has seen an increase in hedge fund sentiment of late. SERV was in 30 hedge funds’ portfolios at the end of the second quarter of 2019. There were 24 hedge funds in our database with SERV holdings at the end of the previous quarter. Our calculations also showed that SERV isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the new hedge fund action surrounding ServiceMaster Global Holdings Inc (NYSE:SERV).
What have hedge funds been doing with ServiceMaster Global Holdings Inc (NYSE:SERV)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in SERV a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in ServiceMaster Global Holdings Inc (NYSE:SERV) was held by Select Equity Group, which reported holding $433.9 million worth of stock at the end of March. It was followed by Iridian Asset Management with a $106.8 million position. Other investors bullish on the company included Gates Capital Management, AQR Capital Management, and Arrowstreet Capital.
Consequently, key hedge funds were breaking ground themselves. Iridian Asset Management, managed by David Cohen and Harold Levy, created the most valuable position in ServiceMaster Global Holdings Inc (NYSE:SERV). Iridian Asset Management had $106.8 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $11.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Paul Tudor Jones’s Tudor Investment Corp, and Bruce Kovner’s Caxton Associates LP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ServiceMaster Global Holdings Inc (NYSE:SERV) but similarly valued. These stocks are EnCana Corporation (NYSE:ECA), TIM Participacoes SA (NYSE:TSU), Medical Properties Trust, Inc. (NYSE:MPW), and YPF Sociedad Anonima (NYSE:YPF). This group of stocks’ market valuations match SERV’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $795 million in SERV’s case. EnCana Corporation (NYSE:ECA) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 12 bullish hedge fund positions. ServiceMaster Global Holdings Inc (NYSE:SERV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on SERV as the stock returned 7.3% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.