During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Sally Beauty Holdings, Inc. (NYSE:SBH) and see how the stock is affected by the recent hedge fund activity.
Is Sally Beauty Holdings, Inc. (NYSE:SBH) a healthy stock for your portfolio? The smart money is buying. The number of long hedge fund positions moved up by 4 in recent months. Our calculations also showed that sbh isn’t among the 30 most popular stocks among hedge funds.
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 32 percentage points since May 2014 through March 12, 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.
Let’s take a look at the latest hedge fund action regarding Sally Beauty Holdings, Inc. (NYSE:SBH).
How are hedge funds trading Sally Beauty Holdings, Inc. (NYSE:SBH)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in SBH 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.
Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in Sally Beauty Holdings, Inc. (NYSE:SBH). D E Shaw has a $45.7 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $41.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass Cliff Asness’s AQR Capital Management, Mario Gabelli’s GAMCO Investors and David Harding’s Winton Capital Management.
With a general bullishness amongst the heavyweights, key money managers have jumped into Sally Beauty Holdings, Inc. (NYSE:SBH) headfirst. Winton Capital Management, managed by David Harding, created the most outsized position in Sally Beauty Holdings, Inc. (NYSE:SBH). Winton Capital Management had $9 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $5.7 million position during the quarter. The other funds with brand new SBH positions are John Overdeck and David Siegel’s Two Sigma Advisors, Matthew Tewksbury’s Stevens Capital Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s now review hedge fund activity in other stocks similar to Sally Beauty Holdings, Inc. (NYSE:SBH). We will take a look at Inter Parfums, Inc. (NASDAQ:IPAR), Veoneer, Inc. (NYSE:VNE), SendGrid, Inc. (NYSE:SEND), and Iridium Communications Inc. (NASDAQ:IRDM). All of these stocks’ market caps resemble SBH’s market cap.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $168 million in SBH’s case. SendGrid, Inc. (NYSE:SEND) is the most popular stock in this table. On the other hand Veoneer, Inc. (NYSE:VNE) is the least popular one with only 10 bullish hedge fund positions. Sally Beauty Holdings, Inc. (NYSE:SBH) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SBH wasn’t nearly as popular as these 15 stock and hedge funds that were betting on SBH were disappointed as the stock returned 4.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.